The results of the Bank of England’s toughest ever stress tests are in, and it’s safe to say results have been mixed; RBS was forced to present a new plan to bolster its capital position, while Barclays and Standard Chartered also failed to meet some of their minimum hurdles.
Here’s a roundup of what analysts and investors are saying in response:
Lucy O’Carroll, chief economist at Aberdeen Asset Management, said that, despite some weaknesses, the tests show the banking sector overall is “broadly well capitalised” :
The individual vulnerabilities show that the job of ensuring our banks are capable of withstanding shocks remains challenging. The tests give banks no opportunity for complacency. Which is a good thing. This year has illustrated how the apparently unthinkable can happen and we all need banks that can absorb the inevitable unforeseen shocks.
Raul Sinha at JP Morgan stressed the relatively positive results for Barclays and Standard Chartered.
Both Barclays and StanChart were not required to submit a new capital plan which is the key outcome from a market perspective.
Overall, we conclude that capital return expectations from Lloyds and HSBC will remain underpinned following this test and believe investors should overweight Lloyds given the potential to positively surprise on capital return at at 4Q’16 or a highly accretive acquisition.
Meanwhile, UBS’s Jason Napier didn’t see much new in RBS’s plan to bolster its capital position by at least £2bn.
We believe this plan, which includes cost cuts, asset disposals and further capital management, mostly is the formal inclusion of measures planned and known by the market. We expect a bigger cost and restructuring plan in February – with associated capital costs – and colour around non-core, low return assets within the Commercial Bank, including £8.5bn in risk-weighted assets.
With uncertainty around timing and cost of Williams & Glyn and Department of Justice residential mortgage-backed securities, we think RBS remains under pressure to deliver on core profits, principally by achieving further significant cost cuts.