Insights from the UK Bank Chiefs (Financials Unshackled Going Deep Edition 1, Issue 6)
Observations following UK Banks at Morgan Stanley Conference
The material below does NOT constitute investment research or advice and is for informational and educational purposes only - please scroll to the end of this publication for the full Disclaimer
Top UK bank executives engaged in ‘fireside chats’ at the Morgan Stanley European Financials conference in London this week. So, what did we learn?
Welcome to Financials Unshackled Going Deep. I dialled into the ‘fireside chats’ that the five largest UK listed banks (LLOY, NWG, BARC, HSBA, STAN) engaged in at the Morgan Stanley European Financials conference over the 17th and 18th of March. Key take-aways by topic and some reflections on what we learned are set out below. The note is mostly focused on BARC, LLOY, and NWG given my UK coverage focus is on the domestic players - but I have also incorporated select commentary from the HSBA and STAN sessions. It’s a trend-focused rather than quantitative-focused note (no financial updates naturally) and hopefully an easier read as a result!
Speakers
Lloyds Banking Group (LLOY): CEO Charlie Nunn
NatWest Group (NWG): CEO Paul Thwaite
Barclays Group (BARC): CEO C.S. Venkatakrishnan (aka Venkat)
HSBC Group Holdings (HSBA): CFO Pam Kaur
Standard Chartered (STAN): Interim CFO Peter Burrill
Key Themes
1) The Mood Music
Reflections in the wake of the Middle East conflict
No significant impact on financial performance / position thus far.
Many emphasised the resilience and low risk nature of their businesses - and recent experience of Russia/Ukraine conflict and evidenced ability to ‘weather storms’.
Some potential ECL build in the pipeline near-term owing to IFRS 9 as well potential adverse RWA migration (but it was only the HSBA CFO who made this point - but considerations for that bank are somewhat differentiated to UK domestic players given geographic footprint differences).
HSBCA’s CFO noted it is seeing latent deposit inflows - unsurprising given its global strength.
Conflict duration the key question according to all - a drawn out conflict is likely to spark inflationary pressures.
Inflation is a double-edged sword as we have seen in recent years - positive in a rates and, therefore, an interest revenue context; negative in a loan growth, customer activity, costs, and, potentially, an asset quality context.
Unshackled View: If this conflict drags on for even a few more weeks (and the risks are that it is drawn out for much longer) I think we are quickly entering into a discussion about NII upside* (rates), early evidence of moderating loan demand, tightening underwriting conditions, potential deposits growth, cost containment risk, and early ECL build and adverse RWA migration.
* LLOY’s CEO did touch on this incremental NII benefit point in response to a question from a member of the audience - comparing the projected rates embedded in its FY26 plan to what’s now implied by swap rates.
Domestic (UK) resilience emphasised
Reiteration of previous messages: household and business resilience (low household indebtedness, strong business cashflows - with room to borrow), modest demand (consumer sentiment varies widely by age cohort, business sentiment has been positive of late but still not seeing strong pick-up in investment), supportive political and regulatory backdrop.
On how things could change under new political leadership (Reform UK was the unspoken word) most didn’t have much to say other than the link between a vibrant banking sector and UK economic growth prospects should be clear - and that these messages would be reinforced by industry executives to any government. It was also noted that the banks have navigated plenty of change in this context in recent years - with the LLOY CEO noting that he has operated under 4 different Prime Ministers and six different Chancellors since he took over the reins in 2021.
Unshackled View: Nothing new here; key questions are whether the regulatory reforms will continue apace in 2026 (e.g., what will happen with ringfencing), what Katharine Braddick’s appointment as Head of the PRA from June will mean in time, how Reform UK continues to poll and how its policy priorities evolve as time progresses, and how the geopolitical backdrop will impact domestic economic conditions
2) Business as Usual Focus
Revenue Trends / Outlook
Positive NII outlook reiterated with structural hedge tailwinds offsetting the impact of lower annualised base rates and mortgage margin pressures (refinancing, flow spread pressures) - and deposit mix remaining broadly stable, though it was widely acknowledged that it is set to remain a very competitive market for deposits. NWG’s CEO spoke of how volume growth (CAL growth more broadly) is supportive in a revenue momentum context - and also noted that 1Q26 mortgage volumes have been “reassuring” and “good” and that mortgage rates have already changed five times since the start of the Middle East conflict, which highlights UK banks’ particular near-term sensitivity to rate changes compared with many overseas markets where rates are typically slower to adjust.
All domestic lenders emphasising attractions of revenue diversification (BARC already there and seeking to grow UK; LLOY and NWG on a journey to increase OOI contribution). LLOY’s CEO was clear that OOI growth is expected to outpace NII growth despite the structural hedge income tailwinds (more detail to be procured at the Strategy Update in July). As expected, the NWG CEO was asked about the Evelyn acquisition and gave a clear account of the strategic rationale, the synergies including the wider capabilities the acquisition brings to NWG, and the expected growth in the segment - all of which management expects will combine to deliver a return on invested capital profile in excess of NWG’s 11% hurdle rate over a 3-year period (as I wrote before evidenced delivery will be key here as ‘the jury remains out’ amongst the investor base in aggregate it appears), with returns to grow further beyond the 3Y period due to compounding benefits of AUM growth (which is effectively just a perpetual growth and improving operating leverage argument which one can extend to any business with expansion ambitions in a ‘steady state’ economic backdrop). Thwaite also discussed the strong growth NWG has delivered in OOI in recent years. BARC’s CEO Venkat was clear that the journey to increase the Group’s proportionate exposure to higher-returning businesses in the UK is a key focus - and he later discussed the significant growth opportunity BARC sees in UK corporate lending (which is constructive for the IB business) - with UK OOI growth in focus within that. He noted that the UK growth initiative will continue alongside a focus on strengthening returns in existing businesses. He also noted that, in an IB context, while the assumption is that market share will remain flat, the ambition is more than this.
Unshackled View: Nothing especially new in any of this it must be said - and the trends and expectations are consistent with what management teams called out at the stage of the FY25 results which isn’t that long ago - though Thwaite’s comments on 1Q mortgage volumes were positive, if not surprising, to be fair.
Cost Efficiency in focus
Executives recapped on management teams’ unwavering focus on cost efficiency and improved operating leverage.
LLOY’s CEO didn’t say too much but emphasised his determination to drive CIR down beyond FY26 while continuing to invest for growth and that more details will be provided in July.
NWG’s CEO highlighted that it is the most efficient large UK bank with a good cost management culture and that a number of levers have been pulled to drive the 21% reduction in the cost base seen in the last four years - simplification of the tech estate, simplification of the footprint, and broader organisational health measures like de-duplication - but that there are further opportunities to take out costs (“there is still some complexity that doesn’t befit the simple business that we are”), which is good to hear again.
BARC’s CEO noted that integration costs associated with the Tesco Bank acquisition will fall off and that the IB has been churning out positive jaws - with investments in technology set to accelerate this trend by broadening and deepening harmonisation of existing infrastructure and practices.
Unshackled View: Common consistent message here on cost efficiencies focus. Nothing new in the messages versus what we heard at the stage of FY25 results.
Asset Quality remains benign - but Private Credit was in much focus
Private Credit aside, there are no observed changes in credit quality.
On Private Credit:
LLOY emphasised its very limited exposure outside of Sponsors (especially PE) lending and commented that it doesn’t really participate in the asset-backed lending for Private Credit as most banks who do that don’t do due diligence on the underlying loans (differentiating LLOY to other banks). He went on to note that: i) LLOY had no exposure to MFS, which was a name that had been “well understood”, effectively saying that LLOY didn’t have exposure for good reason (some will have seen this as a direct jab at BARC); ii) it’s more of a North American issue than a UK issue (again, bringing BARC in focus); and iii) LLOY deliberately slowed down its Corporate & Institutional balance sheet growth on account of Private Credit market concerns - before ending on a softer tone that he “doesn’t see the cockroaches swarming out of the bathroom any time soon”.
NWG’s CEO also noted that the bank has not had exposure to any of the failed lenders in public focus and that, where the bank does have exposures, it has been involved wit the counterparties in question for some time and that management is very comfortable with where it has chosen to participate.
A significant chunk of the BARC session was devoted to Private Credit (with lots of members of the audience quizzing Venkat on it) - Venkat sought to give reassurance in relation to BARC’s strong management of credit risks and noted that BARC has no material credit concerns to report in Private Credit and that the MFS exposures are “something we can bear” and are below the publicly quoted £500m exposure - and that management still expects to fully meet 1Q26 and FY26 group targets. However, when Venkat noted in response to a question from a member of the audience as to whether BARC would increase its exposure to Private Credit in this environment, his response was “unlikely” (before, as is customary in response to such questions, noting that BARC is “happy” with its exposures) which some might say says a lot.
STAN’s Interim CFO noted that the bank gets its own comfort on anything it underwrites (in response to a Private Credit exposure-related question) and that it is comfortable with its position. I felt he sounded slightly nervous discussing it compared to the fluidity with which he dealt with other topics - though, in all fairness, that could just be because it is such a focus point for investors.
Unshackled View: No discussion of higher LTI lending in the UK and what exposures that might imply - but the uptick in average LTI lending has been relatively marginal, according to the latest MLAR data for 4Q25 here - still though, it will likely drive some arrears formation at the margin in time (though, to the extent it is concentrated amongst first-time buyers, that’s a key mitigant). On Private Credit, it’s difficult to know what the fallout could be and it is clearly highly dependent on the counterparties with whom banks lend to as well as the extent of due diligence they do. BARC is clearly most in focus of the UK banks given its c.£20bn of committed exposures at end-FY25. I expressed a view as follows on 1st December and I maintain this high-level perspective: “The issue is disclosure and no one knows with any level of conviction the quantum of system-wide exposures and interdependencies (ie the complete leverage picture). I just cannot believe there won’t be a significant problem for heavily exposed lenders and PC funds before long. The allure of maximum leverage for maximum returns just runs too strong.”.
3) Artificial Intelligence
Revenue augmentation
Executives seemed to me to be at least equally, if not more keen, to talk about the potential revenue benefits as well as the potential cost benefits associated with AI investment - with a well made point that scale operators who can afford to parallel invest heavily in the data and technology foundations set to disproportionately capture the benefits.
LLOY CEO Charlie Nunn spoke about leveraging generative and agentic AI (and Digital investments more broadly) to differentiate the business and enable new growth - using agents to stimulate mass market investing and taking the learnings from agent supports in an everyday banking context to other parts of the business (e.g., mortgages).
NWG’s CEO discussed the scope for an enhanced customer proposition and experience that should serve to deepen the relationship and drive revenue growth.
BARC’s CEO noted the doubling of its investment spend in recent years and how it is strongly focused on investing in AI for deeply personalised customer service and product offerings “in an aggressive way”.
Cost reduction
Significant focus on operating efficiency capture accruing from AI investments. NWG’s CEO spoke about how AI amplifies the cost extraction opportunities - through coding assistants, changes in customer contact centres, summarisation tools, and changes to risk and financial crime operations. HSBA’s CFO discussed applications in employee productivity, KYC onboarding, small ticket lending, and transaction monitoring.
No one was, understandably, willing to put a number on the expected impact for headcount over time. The BARC CEO’s broader reference to the industry being “just at the tip of the iceberg” could be seen as a highly relevant comment in an employee numbers context in the future.
STAN’s Interim CFO made the valid point that the regulatory framework around AI needs to be very carefully considered in the context of AI’s use in decision-making as well as with regard to its access to sensitive information.
As you’re probably aware, LLOY is one bank that has already quantified P&L benefit attributable to AI (though how this is accurately measured is beyond me), with £50m of benefit reported for FY25 and £100m guided for FY26 - Nunn made the casual remark that if you were to scale the £100m and model it out for a 5-year period, you would get into the billions, softly conveying the substantial upside which it sees ahead. It was also notable that Nunn made the point that AI can support improve risk-based pricing decisions (which can have asset quality benefits in my view as I have previously articulated) and capital allocation decisions, which stands to reason in my view.
Unshackled View: Everyone says they are developing an edge here - and that’s not a comment that is specific to UK banks. For sure, the benefits will likely be clear to see in an improved customer product and service proposition context in time. But, like everything in life, the relative strength will vary across institutions. So far, taking account of all of what we have learned from the three large UK domestic banks, LLOY’s pitch appears to be the strongest - but significant caution is needed in being overly conclusive as volume of communication or the imposition of hard quantitative targets does not necessarily equate to the greater degree of advancement / the development of a higher-quality offering and I suspect it will be hard for investors to greatly differentiate between institutions for some time. While LLOY has sensibly sought to put some numbers on the P&L benefits I expect other banks will follow suit but measurement differences will surely prevail. At the end of the day the CIR will tell us what we need to know - and NWG is the leader of the pack in this vein as we sit here today. To me, the burning question is whether AI investments will lead to large-scale headcount reductions. I felt the keenness amongst executives to talk about revenue upside was because: i) executives are typically growth-biased; ii) it is arguably more compelling to / exciting for growth-focused equity investors; iii) cost efficiencies are better understood at this point and there is more differentiation capability on the revenue side; and iv) possibly, a reluctance amongst all executives to start putting numbers on expected headcount reductions.
4) Capital Generation & Deployment
Strong capital positions and internal capital generation
Consistent message regarding strong internal capital generation. LLOY CEO noted this is constructive in a progressive and sustainable dividend context. Venkat noted that the impending changes to US capital requirements could alter the playing field for a UK domiciled bank - there seems to be a clear nervousness here from BARC’s perspective and I suspect this is a significant topic of focus with the regulator behind closed doors. Venkat also noted on the topic of SRTs, that should credit conditions soften and the environment for SRTs to deteriorate, BARC’s longstanding experience in this domain should hold the bank in good stead on a relative basis, but, as I see it: i) BARC is a more intensive user so would be more affected than peer banks; and ii) it all depends on the assets that are the subject of the SRTs (with BARC’s corporate book - with Private Credit exposures meaningful there - a significant user of SRTs).
Unshackled View: SRTs space is well worth watching for developments. This has been a key lever for capital optimisation.
Buybacks and M&A optionality
LLOY’s CEO noted that management engages in regular debate with its investor base in relation to whether buybacks are the most appropriate lever for returning excess capital - and, for now, the verdict of management is that the stock offers good value and that investors continue to like buybacks. On M&A Nunn reiterated the three preconditions we have heard LLOY management speak of in the past: i) providing either increased capability or a very significant repositioning of the businesses that the M&A is designed to support; ii) acceleration of strategy and competitive position; and iii) shareholder returns accretive (noting that this is a “high bar” and, more broadly, that LLOY has walked away from a lot of opportunities that didn’t tick these three boxes).
NWG’s CEO reinforced the commitment to return to buybacks in 1H27 or at the earliest possible opportunity - NWG noted at the stage of its FY25 results that it “will consider buybacks as appropriate” in FY26 with no commitment (in the wake of the Evelyn deal). There was no talk on further M&A (the topic just didn’t come up) but Thwaite did remark that “the capital hierarchy hasn’t changed”.
BARC’s CEO noted that the base case plan for growth is organic-focused and explained how AI has changed how the bank thinks about acquisition prospects, citing how the Best Egg deal serves as an illustration of that where management was very comfortable buying a digital offering that fits well with the branchless USCB business.
Unshackled View: I recently expressed the view that I don’t expect NWG is likely to pursue further large-scale M&A for some time in the wake of the Evelyn deal - with its focus now on integration. Of the others, I think BARC is the most likely to potentially pounce on another (smaller) UK bank - and I previously wrote: “…could it be tempted to buy another specialist lender (despite the fact that the main motive underpinning the Kensington deal was to acquire its platform capabilities) - serving a dual purpose to drive margin (and RoTE) enhancement as well as address the RWAs proportionality conundrum. It would surely be congruent with Venkat’s strategic objective to ‘deliver’ a bank that generates structurally higher returns from a more diversified business model.”. That being said, if we are entering into a higher inflation / higher rate period, it might not be the opportune time to be taking on a specialist player but that all depends on how valuations evolve.
5) Competition / Disruptive Forces
Competition
The question came up at the LLOY session around how the competitive landscape could evolve in the wake of Revolut’s attainment of a UK banking licence (which I wrote about here last week). While Nunn wouldn’t talk explicitly on specific firms, he did make the valid point that a banking licence in and of itself doesn’t change a firm’s capabilities (I made that point last week too though I would note that the FSCS protection that it proffers is something of a selling point from a deposit-gathering perspective), highlighting neobanks’ low average deposit balances* and their highly limited presence in lending markets - and while LLOY will keep a watchful eye on neobanks’ evolution, he spoke convincingly about LLOY’s deeper (and deepening) capabilities and how this is not something he is particularly exercised about.
* I wrote in my post last week that Revolut’s average deposit balances were c.£400 per customer, including business customers at end-FY24. I received some pushback on that this week given FT Lex reported a different figure of c.£575 per customer. I stand over my own computation which reflects only pure deposits of £22.5bn at end-FY24 (not the total customer balances of £30.5bn) and seeks to adjust the denominator of that calculation (on an estimated basis) for the number of business customers (disclosures are patchy on this as far as I can decipher) in addition to the reported 52.5 million retail customer base.
Unshackled View: Of the UK neobanks, I see Revolut as the only credible threat to mainstream lenders but there is no ‘proof of concept’ at this stage and the business has an enormous mountain to climb to become a meaningful competitive force. Indeed, the word ‘threat’ is therefore a very strong term and maybe the word ‘challenge’ would be more apt. I don’t see any significant change in the medium-term save for some incremental competition at the margin in a deposit-taking context.
Other Disruptive Forces
On potential disruption in deposit markets involving agents moving deposits around in real time based on best rate, I thought Thwaite at NWG gave a very thoughtful and measured response to this risk - noting that the UK is already a highly competitive market for deposits and customers who are seeking yield can easily get it, so, while this kind of development will influence search and marketing practices, he is not overly concerned about adverse effects from a marginal product pricing perspective with the exception of operational balances (which are a small percentage of overall balances) but remains mindful of it.
On digital assets / tokenised deposits, HSBA’s CFO noted its openness to using digital asset products and see the use case for tokenised deposits where they present an opportunity for the bank to engage with customers in real time. She seemed to me to be more hesitant in highlighting the use case for stablecoins (are maybe that’s my own unconscious bias seeping through) but noted that, if they are being issued in a market (e.g., HK) then they are important to use.
Unshackled View: Thwaite’s point is a strong one but - indeed, I recall a former CFO of a UK bank that I covered telling me on a Monday (back in 2018) that if I was looking at a price change they made on a Friday I was already out-of-date! However, agents could change the competitive landscape in a deposits context (albeit regulatory tramlines will undoubtedly be highly relevant) and the danger is current account disruption / diminution as I see it.
Closing Note
Please note that this newsletter is one of a three-part Financials Unshackled Newsletters product suite. The other newsletters are: i) Financials Unshackled Ireland (and Europe) Weekly Essentials & Perspectives (sent via own email on Sundays; click here for the latest one); and ii) Financials Unshackled UK Weekly Essentials & Perspectives (sent via own email on Sundays; click here for the latest one). Further product refinements are planned for mid-April and I’ll share details in due course. Thanks for being part of this growing community and email me at john.cronin@seapointinsights.com / DM me in the app if you want to give any feedback or if you want me to add you to the other Newsletter distribution lists (just write Y in reply to this mail).
⚠️ Disclaimer ⚠️
The contents of this newsletter and the materials above (“communication”) do NOT constitute investment advice or investment research and the author is not an investment advisor. All content in this communication and correspondence from its author is for informational and educational purposes only and is not in any circumstance, whether express or implied, intended to be investment advice, legal advice or advice of any other nature and should not be relied upon as such. Please carry out your own research and due diligence and take specific investment advice and relevant legal advice about your circumstances before taking any action.
Additionally, please note that while the author has taken due care to ensure the factual accuracy of all content within this publication, errors and omissions may arise. To the extent that the author becomes aware of any errors and/or omissions he will endeavour to amend the online publication without undue delay, which may, at the author’s discretion, include clarification / correction in relation to any such amendment.
Finally, for clarity purposes, communications from Seapoint Insights Limited (SeaPoint Insights) do NOT constitute investment advice or investment research or advice of any nature – and the company is not engaged in the provision of investment advice or investment research or advice of any nature.