Financials Unshackled Issue 49 | FCA Redress Scheme?/ Starling & Monzo / PAG Results/ Irish Banks' Returns / Trading Book Rules - and Much More

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Rather than the usual one-week lookback, this Financials Unshackled Issue 49 covers key UK & Irish and select Global banking developments over the last couple of weeks - I was away for an extended weekend break in early June so this note catches up from where I left off two weeks ago:

• Key Developments Review (FCA thoughts on possible redress scheme, Starling & Monzo in focus, Paragon Banking Group 1H25 results, thoughts on Irish banks’ return profiles, potential changes to European trading rules)

• Other Notable Newsflow (split between UK, Ireland, and Global)

• W/C 9th Jun Calendar (UK & Ireland focus)

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Key Developments Review

FCA sets out thoughts on potential motor finance redress scheme

The Financial Conduct Authority (FCA) published key considerations in relation to the implementation of a possible motor finance consumer redress scheme on Thursday 5th June here to provide the industry with some further clarity on its thinking ahead of the outcome of the Supreme Court hearing, which is expected in mid-July. The regulator has reiterated that it commits to confirm whether it proposes to introduce a redress scheme within six weeks of the Court judgment.

The FCA reiterates that, if following the outcome of the Supreme Court judgment, it concludes that motor finance consumers have lost out, it is likely that it will consult on an industry-wide redress scheme. While it seems that this is the most likely move by the FCA, it is worth remembering that a redress scheme is not a foregone conclusion here - and it’s also worth bearing in mind that the Lloyds Banking Group (LLOY) CEO Charlie Nunn repeated again at the Treasury Select Committee (TSC) on 20th May that there has been “no evidence of harm” from the bank’s operations in the car financing market. Let’s wait to see what the Supreme Court judgment says but nothing is certain at this point.

There is helpful detail in relation to the principles and workings of a potential redress scheme contained within the publication but the key take-away for me was that a redress scheme must “Ensure the integrity of the motor finance market, so it works well for future consumers” - with the FCA going on to note that “If many firms were to go out of business or withdraw from the market, this could reduce competition and could make it more expensive for consumers to borrow money to buy a car in the future”. This is a sensible perspective. It certainly seems, to the extent possible in the context of the impending Supreme Court judgment, that the FCA is strongly minded to do everything it can to avoid another PPI-style fallout for the sector (and, presumably, faces considerable political heat to avoid such an outcome too) and is looking closely at ways in which to minimise the financial burden for the banking industry whilst ensuring a fair outcome for consumers. Let’s wait for the Court judgment but it doesn’t look to me like we are going to see anything close to the financial fallout associated with the PPI debacle. Consumer fairness is an imperative but that can’t always be viewed through a one-dimensional lop-sided lens.

UK neobanks and fintechs in focus

Lots of media focus on the neobanks and fintechs in recent weeks - with Starling Bank and Monzo publishing their annual reports for FY24 of particular note. The neobanks get lumped into the broader fintech category but I see them as differentiated and I prefer the term ‘digital challenger banks’, which is the main focus of this piece.

Starling Bank Refresh

To recap, Starling Bank posted what were headline-impressive numbers for FY24 (the year to 31st March 2025) with a RoTE of almost 18% and a strong surplus capital position at year-end. It certainly got lots of positive media coverage but, as I wrote here on Thursday 29th May last, digging under the bonnet a bit raises serious questions about the strategic direction of travel in: i) a deposit build context; and ii) more importantly, an ability to recycle its deposits into lending opportunities (and the consequences for its balance sheet structure). Maybe Engine will take off (indeed the Starling Bank CFO spoke about its differentiated GenAI capabilities at Money 2020 on Tuesday which you can read about here) - indeed, Starling’s rapid operating cost growth in FY24 was a significant function of investment in that business but it’s only in its infancy with revenues of just £8.7m in FY24 (up from £2.3m in FY23). For now, you’ve got a bank: i) that has <30% of its £15.7bn of assets sitting in loans (a staggering £6.7bn sits in cash equivalents / central banks and the relatively high-yielding investment securities portfolio is just shy of £4bn); ii) that has been paying up to grow deposits (+10.0% in FY24 to £12.1bn); iii) that is very sensitive to lower base rates, amplified by the continued roll-off by government-guaranteed lending; and iv) whose new initiative Engine is unproven thus far from a material financial contribution perspective. That’s not to say there isn’t value in the current account franchise, the market-leading NPS scores, the Engine franchise, etc. But it’s important to look at the full picture.

Monzo reports full year results

It was Monzo’s turn to report last week. Monzo adopts an unusual revenue calculation. There’s nothing wrong with that but, to facilitate cross-comparison, I recalculate that revenues were £901m if applying a basis of calculation that is consistent with peer banks, including Starling. Monzo’s £901m of revenues on my calculation methodology still overshadow Starling’s £680m (and Monzo’s revenue growth of 38% eclipsed Starling’s 5% growth) but Starling remains far more profitable. Monzo printed post-tax profits of £94.6m but this included a tax credit of £34.1m - meaning pre-tax profits of just £60.5m versus Starling’s £223m (or £281m on an underlying basis).

Monzo’s faster revenue growth profile suggests, at first glance, that one need not share the same concerns about the ‘direction of travel’ of the business as for Starling. But let’s look more closely. Monzo reported end-FY24 deposits of £16.6bn, which were +48% y/y - massively overshadowing the 10% growth in deposits achieved by Starling in the same period - but this growth was supported by growth in instant access balances which come at a price and it was notable that Monzo’s deposit interest expense charge almost doubled in the year. On the assets side of the Balance Sheet, Monzo’s net loan balances sat at just £1.6bn at year-end (well off Starling’s £4.7bn) representing <10% of total assets (with a staggering £11.0bn held in cash equivalents / central banks* and >£5bn in an investment securities portfolio which appears to be lower-yielding and lower risk than Starling’s).

* Andrew Bailey rightly defends the reserves remuneration regime but this seems a sure unintended consequence

Stepping back

So, Starling scores better than Monzo in terms of its ability to recycle deposit product into lending opportunities. Arguably, Monzo has more interest and non-interest revenue growth runway given its greater level of consumer penetration. It’s also investing more aggressively in other markets (Europe, entering the US) than Starling is. But Starling is now focused more on scaling internationally through Engine. Stepping back, Monzo is more of a household name but that’s not translating into sizeable lending opportunities thus far - whilst appreciating that the model is not just about lending by any means. Starling has a larger loan book but is struggling to grow it organically. Both are highly sensitive to declining interest rates (Monzo more so than Starling given its level of excess liquidity). And let’s not forget that both have been around for many years at this stage. Investors are essentially betting that: i) Monzo will manage to scale up significantly in the UK and that its international expansion initiatives will enjoy considerable success (and it’s worth noting the substantial barriers that overseas banks face in seeking to ‘break the US market’ with incumbents in a highly advantageous position owing to the scale of interchange revenues); and ii) Starling will deliver enormous growth in non-interest revenues through its Engine initiative but single digit client volume numbers does not denote ‘proof of concept’ in my view. While one can visualise how these outcomes could manifest, proof will be in the pudding. Let’s see if the dreams come true in time.

Parting thoughts on Starling and Monzo - tech or banks or both?

It would seem to me to be quite a challenge to build excitement amongst the listed bank equity community for these names at this juncture. However, both are seeking to position themselves as quasi-tech businesses - so the tech investor cohort matters too if they do decide to pursue an IPO path at some point, which is not a given. Starling is now using Engine as a lever to reposition itself as a tech name and Monzo’s CEO described the bank as a fintech at Money 20/20 this week, with CityAM reporting his comments to the effect that there will be “a race between two sides of the industry” over the next decade with “legacy banks and whether they get tech” squaring off against “fintech companies… and whether we get banking right”. But these are banks for goodness sake! Maybe they can convince tech investors to invest in banks whilst ignoring standard bank balance sheet and profitability dynamics but that surely seems a stretch. But maybe I’m too narrow-minded and it’s all just a wider social experiment in positioning. Interestingly, Anil also appeared to play down IPO prospects in the aftermath of the FY24 results, with The Times reporting his comments as follows: “Honestly, an IPO is not something we’re focused on right now…We’re oriented entirely around scaling the business and taking it to greater heights.”.

Other select fintech news worth flagging

• Rupak Ghose has written in more detail on both Starling (Thu 29th May) here and Monzo (Mon 2nd June) here - and sets out in the latter piece how Revolut is highly differentiated to both (Ghose focuses on cross-comparing to Monzo particularly) given its notable presence in many markets. Well worth a read in my view.

• Marc Rubinstein writes on Friday 6th June here on the digital challenger bank that I worry most about in the UK, i.e., Chase UK. It’s an interesting read and Financials Unshackled readers will have picked up on my own perspectives on the business in previous editions: “This is a long-term play, but, given JPM’s considerable strategic vision and ambition, financial and intellectual resources, and technological capability, one suspects they’re not getting involved to become just a 5% market share player in UK or German mortgages (for example). Indeed, I expect that Chase will end up proving a significant disruptive force in the UK and other large Continental European markets (to begin with) in time.” (extracted from Financials Unshackled Issue 29).

• Sky News reported on Tuesday 3rd June here that Tide, the business banking services platform, is in advanced negotiations to secure new funding from Apis Partners in a deal that is expected to value its equity at $1bn or more.

• Interesting piece on how Open Banking has failed to deliver the shake-up in payments that it first promised featured in the FT on Monday 26th May here.

Paragon Banking Group publishes encouraging 1H25 results

Paragon Banking Group (PAG) delivered a strong set of numbers and a positively toned update for 1H25 (the six months to 31st March 2025) on Wednesday 4th June. Here are some key take-aways for me:

• Expectations were high coming into the update and PAG delivered against these in overall terms in my assessment.

  • On 1H25 performance specifically, it was notable that operating costs of £89.3m were -£0.7m y/y - and effectively flat h/h, underpinning the improved FY24 cost guidance for <£185m (previously c.£185m).

  • Net interest margin (NIM) of 313bps was down just 1bp h/h - which also supported improved FY24 guidance for NIM to be ‘over 300bps’ from ‘around 300bps’. However, expectations were already strong given the 1Q25 trading statement’s reference to margins “currently running ahead of expectations” - and it was also notable that the CFO Richard Woodman remarked, in response to a question on the analyst call, that management would have upgraded to >310bps if it was felt that this was appropriate (which, to be fair, was PAG’s guidance for FY24).

  • The buyback was upsized from £50m to £100m though that wasn’t too surprising.

  • The credit impairment charge of £15.3m was up slightly h/h (+£1.1m) representing an annualised cost of risk (CoR) of 19bps (versus 16bps for FY24 - and 18bps for 2H24 on my calculations). Management explained that the increase was predominantly development finance-related but that these provision charges were below 2H24 levels. Additionally, there was a £3.1m impairment credit on the mortgage book in 2H24, which always made for a tough base effect.

  • A motor finance commissions accrual of £6.5m was booked which led to some questions - with the CFO providing reassurance in relation to PAG’s contained level of exposure here given its relatively low dependence on commissions from dealers.

  • The recalibration of the mortgage pipeline calculation received attention (given the BTL pipeline of £662m at 31st March was -24% y/y) but the CFO clearly explained that the byproduct of the enhanced filtering on entry is higher conversions. FY25 lending volume guidance was preserved and, in any event, the half-year report sets out positive soundings in relation to the residential rental market and professional landlord activity levels - which are also reassuring, if not unexpected, observations for investors in other businesses that lend to the professional BTL segment including the likes of OSB Group (OSB).

• Funding costs have been a key pinch point for the challenger banking space in recent times. Management provided some reassuring information on tightening liability spreads (serving to support its FY24 NIM guidance upgrade, presumably) in the presentation - and, more importantly, emphasised strongly that “We no longer need to refinance old legacy wholesale funding which has materially reduced the need to raise substantial funding from the savings market, giving us better pricing control and helping in NIM management”. This is likely to be constructive in a NIM accretion context over time - and will, together with some Spring success (see below), likely drive gradual structural consensus NIM upgrades. Indeed, my own sense is that, to the extent that swap rates remain somewhat stable from here (a big IF), PAG has pretty strong prospects of delivering FY25 NIM of >310bps (see above) but that management is judiciously guiding a little bit conservatively (which seems appropriate given recent volatility in swap rates, which can have a rapid distortionary effect). Furthermore, management was quite excited about its new digital savings app, Spring, which leverages Open Banking technology - with the CEO Nigel Terrington neatly describing it as “almost like an internal account within the clearing bank”, indicating that PAG has ambition to acquire competitors’ current account funding through this initiative (and I would surmise that some early success could see the initial 4.3% easy access rate - which is not market-leading - come down materially too). Indeed, Spring received some further positive press coverage at the weekend with This Is Money reporting on the foray here. As a final note on this I would say that, strategically, PAG management has been eyeing up prospective improvements in bank balance mobility as a lever for growth / funding cost advantage within the challenger space for many years. Spring was not concocted overnight.

• Finally, PAG continues to report a strong excess capital position (CET1 capital ratio of 14.2% at end-1H25), would issue AT1 to drive improved capital efficiency if there was a clear near-term use of the capital raised (e.g., an acquisition) as it would otherwise be returns-dilutive, and continues to work towards IRB accreditation. I have spoken to many constituents within the industry in recent months on the IRB accreditation experience and the feedback is that both the Prudential Regulatory Authority’s (PRA) attention levels and dialogue with the industry have improved - but it remains a ‘slow burn’. Finally, on excess capital deployment: i) buybacks are still seen as the most economically attractive mechanism to return capital to shareholders - with the CFO noting that they still remain earnings accretive at a share price of 900p, for example (for clarity, TNAV per share was 627p at 31st March); and ii) management reiterates its selective appetite for M&A but that return, risk and strategic hurdles remain high.

Thoughts on Irish banks’ return profiles

I penned a piece for the Business Post on Thursday 29th May here focused on how Irish politicians must resist the temptation in future Budgets - when the State’s shareholding in AIB Group (AIBG) will, in all likelihood, be down to zero - to slap extra levies, etc., on the banking sector without due consideration for what kind of a banking system the government wants (as an aside, it is notable that AIBG has historically sensibly waited until December - post-Budget - to refresh its medium-term targets). The topic of what a politically acceptable returns level might be has raised its head in the past and I put forward the view that returns on tangible equity (RoTE) in the mid-teens appears to strike the right balance - but that policymakers need to tread carefully given downside risks to returns profiles, especially given the great geopolitical uncertainties and risks to the Irish macro prevailing at the current time (so, thinking about downside buffers on top of reported returns is sensible - taking into account the reality that peak return levels have passed now too). Also, the fact that PTSB’s returns are well below the mid-teens level mean that policymakers need to be very careful not to further hamper the returns profile of that particular bank.

I am categorically not against banks out-earning mid-teens RoTEs - bring it on I say. But when you are talking about a market that is highly concentrated with de minimis competition from overseas players (and a market in which non-banks struggle to compete owing to the disparity in funding costs) and where the golden nugget in terms of delivering outsized RoTEs is the much-coveted banking licence that allows banks raise voluminous funding at ultra-cheap rates then the debate becomes more nuanced. I am all for banks pursuing innovative models or leveraging competitively advantageous low cost models to earn outsized returns. But you’re not getting that with the Irish banks - the turnaround in returns (from consistently below 10% before official rates started to rise) is mostly due to deposit volume growth and low deposit passthrough rates. In fact I would be anxious about the proclivity of management teams to invest adequately for the future in any concentrated market where returns are very strong.

As an aside, I also remark in the piece that “While low deposit pricing has played a key role in supporting the strong returns, it's important to recognise that, in the Irish context, deposit rates need to be somewhat lower — and/or loan pricing somewhat higher — than in other markets, due to the higher capital requirements which are driven by elevated credit risk weights.”. I have made the point many a time over the years that the ultra-high credit risk weights drive a dysfunctional market, i.e., someone has to pay. Everything has an opportunity cost.

Desire for changes to impending European trading rules

Lorenzo Bini Smaghi, Chairman of Societe Generale and former Executive Board Member of the ECB, commented on Bloomberg TV on Wednesday 28th May that the EU should consider whether the new trading rules (the Fundamental Review of the Trading Book or FRTB) are still warranted given the region is keen to expand its capital markets (see Bloomberg article here for more details). I recently flagged in Financials Unshackled Issue 45 that Bloomberg has reported that the ECB has indicated its support for a twin-track implementation of these new trading rules - with the ECB noting, in response to an EC consultation, that banks should have the choice as to whether to apply the new rules in 2026 or 2027. Bini Smaghi clearly wants the ECB to go further and he has a very strong case in my view.

Indeed, it was interesting to read ECB Supervisory Board Member Patrick Montagner’s remarks on FRTB in a recent interview published on the ECB’s website on Wednesday 28th May here, in which he noted: “Both the United States and the United Kingdom have put its implementation on hold, with a review scheduled to take place in 2027. In Europe today there is talk of maintaining and of postponing it. Some suggest doing the same as the United States or the United Kingdom. The FRTB applies first and foremost to market trading activities – which are essential for ensuring the economy operates properly – and has an impact on international banks. Though very specific, they are essential activities. Large firms need banks for hedging against certain risks, such as exchange rate or oil price fluctuations. If the FRTB penalises these activities, this could put banks operating in this sector at a disadvantage. That’s why the European Commission has launched a consultation, and the ECB has issued an opinion on the subject on 7 May. All jurisdictions, including the United States, had implemented a plan for 2025, everyone was working towards that. In my opinion, it would have been best to uphold the agreement signed in Basel in 2019.”. While the last sentence ‘plays it diplomatically’, what he doesn’t say is more important here - it is notable that he doesn’t say that Europe should still press ahead now given UK and US developments and his comments around ‘putting banks at a disadvantage’ indicate to me that he has serious concerns with Europe going ahead on competitive grounds now - irrespective of whether that be in 2026 or 2027.

Indeed, the wide-ranging interview with Montagner is well worth reading in full if you have the time - he also makes some practical observations in relation to the challenges in achieving consensus for the implementation of a European Deposit Insurance scheme as well as giving some colour on SREP reforms.

Other Notable Newsflow

Other UK Highlights:

Sector News

• The Bank of England (BoE) published Money and Credit Statistics for April 2025 on Monday 2nd June here. With the exception of mortgages, growth was recorded across all lending categories - with a notable pick-up in the annual growth rate of borrowing by large businesses (to 5.8% in April from 5.4% in March) and SMEs (to -0.8% in April from -1.2% in March). Net mortgage borrowing fell by £13.7bn in the month to -£0.8bn following an increase in net borrowing of £9.6bn in March. This ‘cliff effect’ is not surprising given the changes to the stamp duty regime effected at the start of April. Net mortgage approvals fell a bit further - for the fourth consecutive month - by 3,100 to 60,500 in April while remortgaging approvals provided some offset. On deposits, substantial inflows into ISAs in April of £14.0bn supported overall household deposit growth of £3.0bn in the month - while there were £7.0bn of net outflows in the case of business deposits.

• UK Finance published its Household Finance Review for 1Q25 on Monday 2nd June - press release here and report here. It’s a bit dated now but is always worth a review for points of detail. Unsurprisingly, a key conclusion of the review was that “uncertainty about global and domestic developments is now front and centre in the news cycle and in households’ outlook” while cost and rate pressures continue to recede.

• Continuing with the mortgages theme, the FT reported on Saturday 31st May here on the return of the 100% LTV mortgage - with both April Mortgages and Gable Mortgages launching such deals earlier in May. Other lenders also offer 100% LTV mortgages subject to certain conditions. While it represents a shift up the risk curve, affordability assessments ensure that the provision of such loan product is in select circumstances only - unlike the pre-GFC (Global Financial Crisis) blanket irresponsible lending practices. Indeed, it is positive to see the emergence of more sophistication and customisation of mortgage product in the UK market.

• It’s worth reading an interview with Sarah Breeden, Deputy Governor for Financial Stability at the Bank of England (BoE), in The Sunday Times on 31st May here. Breeden defends ringfencing, noting that “What ringfencing does is ensure that UK businesses and households will be able to rely on the ringfenced bank to provide financial services regardless of what happens to the rest of the group” but appears keen to emphasise that the BoE is of a pro-growth mindset within the constraints of what financial stability permits: “Stability is the foundation of growth. And we are doing everything we can to underpin, not undermine, growth”. Indeed, the FT reported on Tuesday 3rd June here that Andrew Bailey, BoE Governor Andrew Bailey also defended the ringfencing rules in a letter sent to the House of Commons Treasury Committee on 28th May here. A notable extract from the letter for me was: “Removing the ring-fence would most likely have a negative effect on UK lending, both in terms of cost and quantities, with banks directing funding from retail deposits away from UK households and SMEs and towards investment banking activities or activities outside the United Kingdom.”. Bailey also defended the reserves remuneration regime in the letter - a topic I wrote on extensively in Financials Unshackled late last year.

Company News

• HSBC (HSBA) issued a RNS on Friday 6th June noting that it has been agreed that Sir Mark Tucker will step down as Chairman and as a Board member with effect from 30th September to facilitate him taking up the Chairman role at AIA with effect from 1st October. The process to select Tucker’s successor is ongoing and Brendan Nelson (INED) will assume the role of Interim Group Chair upon Tucker’s retirement, subject to regulatory approval. Interestingly, Sky News also reported on Friday here that Kevin Sneader, former Global Managing Partner of McKinsey, has been approached about the HSBA Chairman position. Separately, The Wall Street Journal reported on 30th May here that HSBA is exiting its US business banking portfolio. According to the newspaper, the division serves c.4,400 clients, generates up to $50m in annual revenue, and had 40 employees who have now been laid off.

• Investec (INVP) issued a RNS noting, in addition to some vesting of shares and on-market sales to settle tax liabilities, there were some director share sales as follows: i) Ruth Leas (CEO) sold 92,101 shares in INVP at a price of 527p per share on Friday 6th June - for gross proceeds of almost £500k; ii) Fani Titi, Director, sold 100,546 shares in INVP at a price of 524p per share on Friday 6th June - for gross proceeds of just over £525k; and iii) Nishlan Samujh, Director, sold 65,173 shares in INVP at a price of 524p per share on Friday 6th June - for gross proceeds of just under £350k.

• The UK Government confirmed on Friday 30th May here that it has completed its exit from its investment in NatWest Group (NWG). While the exit of Treasury from the register will not serve to drive any strategy shift in my view, it should still serve to provide more oxygen for management to run the business as it sees fit with a potentially lower risk of political intervention and has undoubtedly been positively received (though entirely expected) by investors. Separately, Sky News broke the news on 2nd June here that Solange Chamberlain has been selected as NWG’s new Chief Executive, Retail Banking. Finally, in a NWG context, The Guardian reported here on Friday afternoon on another IT outage following an app update on Thursday.

• OSB Group (OSB) issued a RNS noting that J.P.Morgan Asset Management (UK)’s shareholding in the bank increased to 5.35% (previously disclosed shareholding: 5.19%) following a transaction on Thursday 22nd May.

• Shawbrook Bank announced on 29th May here the successful completion of a £568m securitisation of loans originated by The Mortgage Lender (TML). The bank retained the £501m Class A Notes while the £67m Class B to X Notes and the residuals were pre-placed - with considerable interest received from investors. The transaction delivered “an attractive gain on sale”.

Other Irish Highlights:

Sector News

• The Central Bank of Ireland (CBI) published Money and Banking Statistics for April 2025 on Friday 30th May here. It was a strong month for both lending and deposit volumes - with growth across all categories. Some key notables were: i) loans for house purchases (incl. securitised loans) were +3.9% in the year to end-April; ii) non-financial corporate (NFC) lending was +1.7% in the year to end-April; iii) household deposits were +€1.6bn in April alone to €163.9bn and were +6.1% in the year to end-April on my calculations (using Table A.11.1); and iv) NFC deposits were +€0.5bn in April to €80.4bn and were -2.4% y/y on my calculations (using Table A.11.1).

• Banking & Payments Federation Ireland (BPFI) published its Mortgage Approvals Report for April 2025 on Friday 30th May - press release here and report here. The numbers remain strong - with y/y growth in the value of mortgage approvals coming in at +13.6% y/y to €1.50bn in April (+29.7% y/y in March, +6.6% y/y in February) - which is positive for expansion in bank mortgage books. First-time buyers accounted for 62% of total volume while mover purchasers accounted for just 18% - with this imbalance a sign of a dysfunctional housing market. Indeed, for those who want a quick synopsis of the bottlenecks in the Irish housing market, it is well worth listening to an engaging Irish Times Inside Business podcast of 21st May last here with guest contributor Marian Finnegan of Sherry FitzGerald. Finnegan doesn’t hold back on diagnosing the root causes of the issues in her view, which is admirable and refreshing - indeed, this podcast should be of interest to any Financials Unshackled readers who also follow the Irish housebuilders.

• It’s worth reading an interview with Helen Carbery, CEO of the Credit Union Development Association (CUDA), in The Sunday Times on 31st May last here. Carbery speaks enthusiastically and energetically about the opportunity for the credit unions to make a mark in mortgage lending. Indeed, more competition is always welcome provided a singular institution (systemic or not as the case may be) is not taking disproportionate risk in my view. Indeed, in this vein, Carbery picks up on the impending Central Bank regulations - following the passage of the Credit Union (Amendment) Act in December 2023 - in the context of permissions for credit unions to join forces in a “corporate credit union”.

Company News

• AIB Group (AIBG) announced on Friday 6th June here that it has reached agreement on the sale of its 49.99% shareholding in AIB Merchant Services (AIBMS) to Fiserv. The transaction is expected to boost the CET1 capital ratio by c.35bps for just a negligible level of eps dilution (AIBG recorded associated income of €34m in FY24). It doesn’t move the needle but, helpfully, looks like it will almost cover the capital hit of c.40bps (indicated by bank management at the stage of the FY24 results) associated with the early retirement of the warrants.

• The Irish Times reported on Thursday 5th June here that Avant Money (Bankinter) has trimmed its Flex Mortgage rate - which is linked to 12M EURIBOR - to <3% following changes in EURIBOR (the rates are automatically adjusted annually), which is a competitive product in a market context.

• Bank of Ireland Group (BIRG) issued a press release on Tuesday 3rd June here noting that it is reducing rates on 12M and 18M term deposits by 25bps - with the changes taking effect from Thursday 5th June. This is not a surprising decision and is sensible in the context of net interest margin (NIM) optimisation considerations given the evolving rate backdrop. Despite the fact that the rate changes are unlikely to drive material inflows (which may not be desired anyway), the 12M product rate change will likely be followed by BIRG’s peers without undue delay. Separately, BIRG announced the appointment of Niamh Marshall, Retired Partner at KPMG Ireland, as an INED. Finally, BIRG issued a RNS noting that UBS Asset Management’s shareholding in the bank has fallen below 3% (previously disclosed shareholding: 3.03%) following a transaction on Tuesday 3rd June.

• It was interesting to pick up on Bianca Zwart’s (Chief Strategy Officer at Bunq) comments to the Business Post on Monday 2nd June in which she noted that the bank has had a very positive experience connecting with Irish consumers: “In general, I think we’re growing quite well, but in Ireland, it’s an intrinsic fit that I can’t quite put my finger on yet. Irish people seem to get what we want to do.”. Bunq’s Irish user base reportedly quadrupled and its customer deposits doubled y/y in 2024.

• PTSB launched its new Sustainability Strategy on 29th May here. It is very disappointing to observe how quickly global powers across the political and finance spectrum have de-emphasised ESG initiatives at what has been the first available opportunity it would seem. That said, given the level of unrealism associated with the longer-term ‘ambitious’ targets - and the fact that they mostly span a long enough period to ensure no one in power today is accountable - maybe it’s not that surprising as the pressure to start incurring cost was building. To date, the Irish banks have clung tightly to their image as model ESG champions. The relatively heightened political antennae in Irish bank boardrooms as well as the fact that AIBG and BIRG have made ESG leadership a central plank of management delivery means they would be extremely hesitant to reverse gear anyway in my view. While lending targets are one thing, to the extent that macroeconomic growth softens or the banking sector suffers a material diminution in returns, ESG-related expenditures will likely be towards the front of the queue for trimming.

Other Global Highlights:

• The FT reported on Tuesday 27th May here that EU authorities are planning their first stress test on non-bank lenders - potentially as soon as next year. There has been a lot of coverage of private credit over the last couple of weeks and a few standout pieces of note for me were: i) a Bloomberg report on Friday 30th May here noting that the ECB has started issuing cautionary letters to banks in relation to their practices in financing private funds; and ii) a blog from Claudia Buch, Chair of the ECB Supervisory Board, on Tuesday 3rd June here which highlights the growing interlinkages between banks and private funds.

• Bloomberg published some granular detail in relation to the proposed new rules applicable to the European securitisation market on Wednesday 28th May here. The article also picks up on prospective changes to the significant risk transfer (SRT) rules, including adjustments to the P factor.

• Bloomberg reported on Friday 30th May here that Santander has overtaken Barclays (BARC) as Europe’s largest significant risk transfer (SRT) issuer.

• Bloomberg reported on Friday 30th May here that Stripe has held discussions with banks about their potential use of stablecoins - with President and Co-Founder John Collison remarking that “In the conversations we have with them, they’re very interested”. I recently reported that several forward-looking major banks - including the likes of JPM and ANZ Bank - are actively developing or exploring their own stablecoins as part of a broader shift toward blockchain-based financial infrastructure.

• Craig Coben penned an excellent piece in GlobalCapital on Tuesday 27th May here on why big money hiring often fails in Investment Banking. I suspect Coben’s sentiments resonate with many in the industry.

W/C 9th Jun Calendar

Tue 10th Jun (09:30 BST): Bank of England (BoE) 1Q25 Mortgage Lending and Administration Return (MLAR) Statistics

Wed 11th Jun (11:00) BST: Central Bank of Ireland (CBI) Retail Interest Rates - Apr 2025

Wed 11th Jun (12:30) BST: Central Bank of Ireland (CBI) Financial Stability Review 2025:1

Thu 12th Jun (07:45 BST): NatWest Group (NWG) CEO Fireside Chat at Goldman Sachs European Financials Conference in Berlin (link to register here)

Thu 12th Jun (09:25 BST): Lloyds Banking Group (LLOY) CFO Fireside Chat at Goldman Sachs European Financials Conference in Berlin (link to register here)

Fri 13th Jun (11:00 BST): Central Bank of Ireland (CBI) 1Q25 Mortgage Arrears

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