U.K. Banks: Looking At The Facts Rather Than Received Wisdom - March 4, 2019 AUTHORS - Home | S&P Global Ratings
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AUTHORS
Nigel Greenwood
Richard Barnes
RESEARCH CONTRIBUTOR
Fabrizio Serafini
U.K. Banks: Looking At The Facts
Rather Than Received Wisdom
March 4, 2019Contents Key Takeaways 3 Our Base-Case Outlook 4 Results 9 Macro Themes 24 Banking Themes 33 Related Research 37 Analytical Contacts 38 Disclaimer 39 www.spglobal.com/ratingsdirect March 4, 2019 2
Key Takeaways
— S&P Global Ratings expects U.K. banks to demonstrate resilience in 2019. Based on their 2018 financial results and updated capital
policies, the starting point incorporates our view of their healthy regulatory capital and leverage ratios, unusually high liquidity balances,
strong progress made on MREL targets, excellent asset quality, improving statutory earnings, and stable strategic focus.
— But, banks are ultimately a function of the economy that they serve and the U.K. economy is slowing. And, political risk in 2019 in relation
to Brexit is undoubtedly the key risk to bank ratings.
— We believe that a no-deal Brexit would be detrimental to the U.K. economy, which in turn could result in negative rating action on U.K.
banks. In these circumstances, in the near term, any rating action would likely be limited to bank-specific outlook revisions rather than
downgrades.
— History shows that credit losses spike, rather than accumulate gradually, when an economy enters a recession. Current credit losses are
benign, at an average of about 0.2% across the top-six U.K. banks in 2018, compared to the 30-year average of around 0.7%. Low
interest rates and high employment rates underpin this outcome.
— In the late-2018 Bank of England stress test--which all of the tested banks passed--the five-year cumulative stressed loss rate for
domestic lending was 4.7%, ranging from 1.7% for mortgages to 27.6% for consumer credit. This compares to around 1.0% over the
benign five years to 2018. The stress test assumed a 4.7% fall in U.K. GDP and a 33% decline in house prices, among other variables.
— Such an outcome, we think, could lead to impairments rising to an annual average of 20%-30% of revenues from the current 3%-7%,
absent management actions, which would clearly crimp but may not derail our view of the capitalization of the four major banking
groups; less diverse banks may be more affected.
— We assume that bank management will also remain focused on competitive trends, operational risks, and technology investment needs
as the banking industry continues to evolve.
— We expect that revenue growth may be hard to achieve given pressures on new mortgage spreads, a general slowdown in total lending
growth, the increasingly likely absence of base rate rises, and difficulties in expanding noninterest income.
— Past actions on cost control are starting to bear fruit, but in some respects the ongoing need to invest in the business and digital
capability is negating these.
— We assume that conduct and litigation charges will be less material.
— Across the eight largest rated U.K. banking groups, six have a stable outlook and two have a positive outlook (RBS in relation to its
intrinsic creditworthiness, and Nationwide Building Society in relation to our view of its additional loss-absorbing capacity).
www.spglobal.com/ratingsdirect March 4, 2019 3Our Base-Case Outlook For U.K. Banks In
2019 Is Stable
Worsening Neutral Improving
We expect domestic net interest income to be flat or moderately lower, reflecting modest net lending growth and
continued mortgage market competition. Margin prospects look stronger in certain international markets--including
Revenues Hong Kong and the U.S.--which are important markets for some U.K. banks. Fee & commission income will depend
on capital markets activity and market valuations, among other factors
We expect the sector will maintain close control of business-as-usual operating costs, partly to create headroom for
technology investments, but also to support earnings. For several banks, we expect an absolute reduction in
Costs expenses due to process improvements and operational simplification.
Domestic credit losses have been extremely low in recent years and our base-case expectation is a moderate
increase in 2019. We base our expectation on ongoing pressure on certain corporates, such as the retail and
Credit Quality business services sectors, and the seasoning of the recent uptick in consumer credit lending (which is now slowing).
We expect the subdued revenue outlook to limit earnings prospects and domestic pretax earnings to remain broadly
stable. Certain international markets appear to offer greater upside.
Profitability
We expect most banks will maintain their capital ratios around the current levels.
Capital
To mitigate potential adverse changes in funding costs and availability as Brexit approaches, U.K. banks maintain
comfortable liquid asset portfolios and pre-funded part of their 2019 debt issuance requirements last year. We expect
Funding & Liquidity this conservative policy will provide resilience to their balance sheets.
www.spglobal.com/ratingsdirect March 4, 2019 4Shareholder Distributions Reflect The
Increased Confidence Of Bank Boards
Dividend per share (pence)
2016 2017 2018 Recent Announcements
Barclays 3.0 3.0 6.5 None.
HSBC
51 51 51 None, following $2bn buyback during 2018.
(cents)
A £1.75 billion buyback during 2019, following a £1 billion buyback during
Lloyds 2.55 3.05 3.21
2018.
RBS 0 0 4.5 A 7.5p per share special dividend (£904 million)
Source: Company reports.
www.spglobal.com/ratingsdirect March 4, 2019 5The UGCP Of The Largest U.K. Groups Tends
To Be At Or Below The ‘a-’ Median Of The
Top-100 Global Banks
30 Lloyds, Nationwide, Largest U.K. Banks
Standard Chartered
Top 100 Banks*
25
20
No. of entities
Barclays,
Santander UK RBS
15
HSBC
10
5
0
aa- a+ a a- bbb+ bbb bbb-
UGCP--Unsupported group credit profile. *Just those with UGCP of ‘bbb-‘ or higher.
Source: S&P Global Ratings database. Data as of Feb. 22, 2019.
www.spglobal.com/ratingsdirect March 4, 2019 6Most Of The Top100 Banks Have A Stable
Outlook, But Two U.K. Banks Are On Positive
Outlook
Negative
11%
UK Positive
2%
Positive
9%
UK Stable
5%
Stable
73%
Data as of Feb. 22, 2019. The U.K. banks are Barclays, HSBC, Lloyds, Nationwide, RBS, Santander UK, and Standard Chartered.
Source: S&P Global Ratings database.
www.spglobal.com/ratingsdirect March 4, 2019 7Intrinsic Creditworthiness Drives Positive
Outlook On RBS; For Nationwide It’s ALAC
AAA ALAC
AA+
UGCP
AA S
Anchor
AA- S
A+ P S S S Outlook*
A P
A- S
BBB+
BBB
BBB-
BB+
BB
BB-
HSBC Lloyds Nationwide Standard Barclays PLC Santander The Royal CYBG PLC
Holdings PLC Banking Building Chartered UK Group Bank of
Group PLC Society PLC Holdings PLC Scotland
Group PLC
UGCP--Unsupported group credit profile. ALAC--Additional loss-absorbing capacity.*P--Positive, S--Stable. All ratings relate to the main
operating bank. Ratings as of Feb. 22, 2019.
Source: S&P Global Ratings.
www.spglobal.com/ratingsdirect March 4, 2019 8Solid Headline 2018 Results Across The Board (bil. £, unless stated) Barclays HSBC* Lloyds RBS Total assets 1,133,283 2,020,918 797,598 694,235 % change versus 2017 0.0 1.4 (1.8) (5.9) Operating revenues 21,205 44,522 18,995 12,931 % change versus 2017 0.3 6.2 1.8 0.1 Noninterest expenses 14,036 26,062 9,500 7,322 % change versus 2017 (4.9) 5.9 (0.5) (2.7) Preprovision operating income 7,169 18,460 9,495 5,609 Pretax profit 3,494 15,713 5,960 3,359 Reported RoTE (Statutory) (%) 3.6 8.6 11.7 4.8 Reported RoTE (Underlying) (%) 8.5 10.2 15.5 10.9 Net interest income/average earning assets (%) 1.3 1.6 2.4 1.9 Noninterest expenses/operating revenues (%) 66.2 58.5 50.0 56.6 New loan loss provisions/average customer loans (%) 0.42 0.18 0.20 0.12 Gross NPA/total loans (%) 2.7 1.6 2.4 2.4 ECL allowance/gross NPAs (%) 77.0 53.7 36.6 43.6 Customer loans (net)/customer deposits (%) 83.0 72.0 116.5 85.8 *HSBC Holdings reports in U.S. dollars. We have converted the data to pounds sterling at the relevant exchange rates. The percentage changes are based on U.S. dollars. ECL--Expected credit losses. RoTE--Return on tangible equity. NPA--Nonperforming assets (Stage 3 loans+POCI+performing renegotiated loans). Source: S&P Global Ratings’ database and ratio definitions. www.spglobal.com/ratingsdirect March 4, 2019 9
Weaker Global Capital Markets, Not
Domestic Banking, Affected Q4 Revenues
Quarter over Year over
(Bil. £, unless stated) Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018
quarter (%) year (%)
Barclays PLC 5.0 5.4 5.6 5.1 5.1 (1.1) 1.0
HSBC Holdings PLC* 12.3 13.7 13.6 13.8 12.7 (8.0) 3.2
Lloyds Banking Group PLC 4.6 4.6 4.9 4.7 4.6 (2.5) (1.3)
The Royal Bank of Scotland
3.1 3.3 3.4 3.6 3.1 (16.0) 0.0
Group PLC
Santander UK Group
1.2 1.2 1.2 1.1 1.1 (5.8) (7.9)
Holdings PLC
Source: Company reports. *Earnings reported in U.S. dollar.
www.spglobal.com/ratingsdirect March 4, 2019 10Improving Returns, And Underlying Returns
Catching Up With Statutory
25 Statutory ROE
20 Underlying ROE
15
10
5
%
0
(5)
(10)
(15)
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
ROE--Return on equity. Figures cover Barclays, HSBC, Lloyds, and RBS, and are weighted by shareholders' equity. Underlying ROE excludes
nonoperating items (mostly conduct, litigation, and restructuring costs).
Source: Bank of England for 2005-2017 data, S&P Global Ratings for 2018.
www.spglobal.com/ratingsdirect March 4, 2019 11Profit Margins Are Also Recovering Well
60 Pretax margin
50
Preprovision
income/revenues
40 margin
30
20
%
10
0
-10
-20
Data is based on 6-bank aggregate (Barclays, HSBC, Lloyds, Nationwide, RBS, and Santander UK). Data for Nationwide is 6M to Sept. 30, 2018
annualized.
Source: S&P Global Ratings’ database and definitions, and company accounts.
www.spglobal.com/ratingsdirect March 4, 2019 12Net Interest Margins Are Holding Up Despite
High Liquidity Levels And Mortgage Market
Competition
4
2015
2016
3
2017
2 2018
%
1
0
Nationwide HSBC Holdings Santander UK The Royal Bank Lloyds Banking Barclays PLC
Building PLC Group Holdings of Scotland Group PLC
Society PLC Group PLC
Data as of Dec. 31. Reported net interest margins: Barclays: net interest income to average customer assets (Barclays UK and Barclays
International); HSBC: net interest income to average interest-earning assets; Lloyds: net interest income to average interest-earning banking
assets; Nationwide: net interest income to assets (9M to Dec. 31, 2018, annualized); RBS: net interest income to interest-earning assets of the
banking business; San UK: net interest income to average customer assets.
Source: Company accounts.
www.spglobal.com/ratingsdirect March 4, 2019 13But Competition Pressures Are More
Obvious At Mortgage-Biased Nationwide
And Santander UK
3.5
Nationwide BS
3.0 Santander UK
2.5 Lloyds
2.0
%
1.5
1.0
0.5
0.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Data at Dec. 31, 2018. Nationwide's year-end is April 4 and data for 2018 is nine months to Dec. 31, 2018. Lloyds’ data for 2005-2008 is Lloyds
TSB Group PLC.
Source: Company accounts.
www.spglobal.com/ratingsdirect March 4, 2019 14Restructuring Costs No Longer A Material
Factor; Ring-Fencing Cost The Industry Over
£3 billion
7 7
Total restructuring
costs (right scale)
6 6
Restructuring
5 5
costs/revenues (left
scale)
4 4
Bil. £
%
3 3
2 2
1 1
0 0
2014 2015 2016 2017 2018
Chart based on Barclays, HSBC, Lloyds, and RBS. HSBC data converted from USD to GBP. RBS has stated that restructuring costs will be around
£1.5 billion in 2019.
Source: S&P Global Ratings' database and ratio definitions.
www.spglobal.com/ratingsdirect March 4, 2019 15Despite The Restructuring, The Cost-To-
Income Ratio Has Yet To Fundamentally
Improve
70
Average 2012-14
65 2018
60
55
%
50
45
40
Barclays PLC Nationwide HSBC Holdings The Royal Bank Santander UK Lloyds Banking
Building Society PLC of Scotland Group Holdings Group plc
Group PLC PLC
Data as of Dec. 31, except Nationwide as of Sept. 30, then annualized.
Source: S&P Global Ratings’ database and definitions.
www.spglobal.com/ratingsdirect March 4, 2019 16The Loan Loss Rate Remains Very Low; The
Only Way Is Up
180
Annual impairment
losses
160
Average for 1990-2018
140
120
100
Bps
80
60
40
20
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Data mainly based on unweighted average for Barclays, HSBC (HSBC Bank plc prior to 2018), Lloyds, Nationwide, RBS, and Santander UK. Data
may not be fully comparable across all periods owing to changes in accounting standards.
www.spglobal.com/ratingsdirect March 4, 2019 17The Stock Of Non- And Under-Performing
Loans Reduced In 2018
70
Jan. 1, 2018
60
Dec. 31, 2018
50
40
Bil. £
30
20
10
0
Stage Stage Stage Stage Stage Stage Stage Stage Stage Stage Stage Stage
2* 2§ 3 2* 2§ 3 2* 2§ 3 2* 2§ 3
Barclays HSBC† Lloyds RBS
*Not past due or 30 days past due. †Reports in US$. The amounts have been converted using the relative exchange rates.
Source: Company reports.
www.spglobal.com/ratingsdirect March 4, 2019 18Problematic Loans Are Low And Coverage
Appears Sound
18 50 Stage 2 loans / total
loans (left scale)
16 45
40 Stage 3 loans / total
14 loans (left scale)
35
12
Stage 3 ECL allowance
30 / Stage 3 gross loans
10
(right scale)
25
%
%
8 Stage 2 ECL allowance
20 / Stage 2 gross loans
(right scale)
6
15
4
10
2 5
0 0
Barclays PLC HSBC Holdings PLC Lloyds Banking The Royal Bank of
Group PLC Scotland Group plc
Source: S&P Global Ratings’ database.
www.spglobal.com/ratingsdirect March 4, 2019 19Conduct And Litigation Charges Will Be
Lower In 2019
16
14
12
10
Bil. £
8
6
4
2
0
2014 2015 2016 2017 2018
*Based On Barclays, HSBC, Lloyds, and RBS. HSBC data converted from USD to GBP. At Dec. 31, 2018 the four banks combined had around £3.3
billion of balance sheet provisions to cover remaining PPI utilization through to the end-August 2019 PPI claims deadline.
Source: S&P Global Ratings’ database.
www.spglobal.com/ratingsdirect March 4, 2019 20Regulatory Capital And Leverage Ratios
Have Improved And We Expect Stability
7
6.5 CYBG 2018
RBS NBS Dec. 31, 2018:
6 HSBC CET 1 -- 31.7%
2012
U.K. Leverage -- 5%
U.K. Leverage Ratio (%)
5.5 Lloyds
5 Barclays
CYBG
4.5 Santander UK
HSBC
4
3.5
NBS Santander UK
3 RBS Lloyds
Barclays
2.5
2
7 9 11 13 15 17 19
Common Equity Tier 1 Ratio (%)
Data as of Dec. 31, 2018. CYBG's CET1 ratio is at this date but its leverage ratio is at Sept. 30, 2018.
Source: Company accounts.
www.spglobal.com/ratingsdirect March 4, 2019 21S&P Global Ratings’ Funding And Liquidity
Metrics Remain Sound
2.5 RBS
Broad liquid assets/short-term wholesale
2 Lloyds
HSBC
Barclays
1.5
funding (x)
1
0.5
0
95 100 105 110 115 120 125 130
Stable funding ratio (%)
Source: S&P Global Ratings’ database.
www.spglobal.com/ratingsdirect March 4, 2019 22MREL Is Well Advanced
MREL As A Proportion Of Regulatory Risk-Weighted Assets
35
32.6%
30.7%
30 28.1%
Senior, 9.5% 26.6%
Senior, 8.2%
25
Senior, 9.7% Senior, 7.2%
T2, 4.7%
%
20 T2, 3.9%
AT1, 2.4% T2, 2.1% T2, 2.8%
AT1, 3.6%
15 AT1, 3.1% AT1, 2.6%
10
CET1, 14.8% CET1, 16.2%
CET1, 13.2% CET1, 14.0%
5
0
Lloyds RBS Barclays HSBC
MREL--Minimum requirement for own funds and eligible liabilities. Data as of Dec 2018.
Source: companies' fixed income presentations.
www.spglobal.com/ratingsdirect March 4, 2019 23Moving On To The Macro Themes, The
Impact Of A No-Deal Brexit Could Be…
GDP Unemployment Households lose Inflation peaks at House prices down
5.5% 7.4% £2,700 4.7% 10%
below our baseline by 2021 in income per year in mid-2019 by 2020
forecast by 2021 2019-2021
Source: S&P Global Ratings’ No-Deal Brexit Scenario.
www.spglobal.com/ratingsdirect March 4, 2019 24Encouragingly, Consumer Credit Growth Has
Slowed, But SME Loan Demand Remains
Weak
12 Consumer credit (exc.
Student loans)
10 Residential mortgages
8 SMEs
Annual Rate (%)
6 Larger corporates
4
2
0
(2)
(4)
Oct 15
Oct 16
Oct 17
Oct 18
Jun 15
Jun 16
Jun 17
Jun 18
Apr 15
Apr 16
Apr 17
Apr 18
Aug 15
Aug 16
Aug 17
Aug 18
Feb 15
Feb 16
Feb 17
Feb 18
Dec 15
Dec 16
Dec 17
Dec 18
Source: Bank of England.
www.spglobal.com/ratingsdirect March 4, 2019 25And, The Mortgage Market Is Growing In Line
With Nominal GDP Growth
400
Gross Lending
350 Net Lending
300
250
Bil. £
200
150
100
50
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Bank of England.
www.spglobal.com/ratingsdirect March 4, 2019 26New Mortgage Spreads Are Tight Owing To
Heightened Competition From Over 30
Lenders
Spread Of Two-Year Fixed Rate Over The Two-Year Swap 75% loan-to-value
Rate
6
90% loan-to-value
5
4
3
%
2
1
0
2012 2013 2014 2015 2016 2017 2018 2019
Source: Bank of England, Bloomberg.
www.spglobal.com/ratingsdirect March 4, 2019 27Banks Are Exposed To The Leveraged U.K.
Consumer (Though The Trend Is More Benign
Than In Some Markets)
Total Household Debt/Gross Disposable Income
260 U.K.
Netherlands
240
Sweden
220
U.S.
200
180
%
160
140
120
100
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: S&P Global Ratings’ database.
www.spglobal.com/ratingsdirect March 4, 2019 28The Composition Of Household Debt Has
Become More Diverse
Student debt is not held by the banks
2.0 Student Loans
7% Other Consumer Credit
6%
6% 8% Credit Card
5% 5% 7%
2% 2% 4% 4% 7%
2% 3% 3%
1.5 7%
7%
11%
11% Mortgage
2% 10% 8% 7% 7% 7%
9% 7% 11%
1% 11%
10% 10% 10% 11%
1% 13% 13% 12% 11% 11%
10%
1% 11% 14%
15%
Tril. £
1.0 1% 11%
15%
1% 12%
1% 16%
12% 17%
12% 74%
17% 76% 75%
17% 75% 78% 79% 79% 80% 79% 78% 77%
76%
0.5 75%
73%
72%
72%
70%
70% 70%
0.0
Source: Bank of England.
www.spglobal.com/ratingsdirect March 4, 2019 29House Price Growth Has Slowed, A Trend
That Could Accelerate In 2019
But our base case is nominal growth of 1.5% in 2019
House Price Indices, Year-On-Year Change
16 London
14 U.K.
12
10
8
%
6
4
2
0
(2)
Source: Land Registry.
www.spglobal.com/ratingsdirect March 4, 2019 30The Loan-To-Value Profile Of New Lending
Has Not Weakened
The slight uptick relates to the government's Help To Buy
Scheme
Systemwide
Systemwide New
NewLending by LTV
Lending by LTV
60
Over 95%
Over 90 < = 95%
50
Over 75 < = 90%
40
30
%
20
10
0
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Bank of England.
www.spglobal.com/ratingsdirect March 4, 2019 31Mortgage Arrears Remain Very Benign
Current foreclosures are the lowest on record
Residential Mortgages In Arrears Or In Possession As A Proportion Of Total
Mortgage Balances
4 10 % or more in
arrears
7.5 < 10% in arrears
3 5 < 7.5% in arrears
2.5 < 5% in arrears
Average: 2.17%
1.5 < 2.5% in arrears
2
%
In possession
1
0
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Bank of England.
www.spglobal.com/ratingsdirect March 4, 2019 32In Terms Of Banking Themes, The PPI Story
Is Nearing Its End, And Recent Trends Are
Better
Monthly Payment Protection Insurance Payouts
800 Monthly PPI payouts
700
Mean for each
600 calendar year
500
bil. £
400
300
200
100
0
Source: Financial Conduct Authority.
www.spglobal.com/ratingsdirect March 4, 2019 33“Challenger Banks” Make Up A Meaningful
Part Of The Banking Landscape
They are growing much faster but the ring-fenced banks
are starting to ‘fight back’
Banks' Gross Loans Challenger Banks' Gross Loans
Lloyds Banking Group 80
PLC £444 bil.
70
10% Challenger banks £350 60
23% bil.
50
Bil. £
10%
RBS (UK loans) £273 bil. 40
30
Barclays (UK loans) £240 20
12%
bil.
10
18%
HSBC (UK loans) £227 bil. 0
The Paragon Group…
Principality Building…
Co-operative Bank PLC…
Tesco Personal Finance…
Coventry Building Society
Leeds Building Society
FCE Bank PLC
Yorkshire Building Society
Bank of Ireland (UK) PLC
Metro Bank PLC
Aldermore Bank PLC
OneSavings Bank PLC
Skipton Building Society
CYBG PLC
TSB Banking Group PLC
AIB Group (U.K.) PLC
Shawbrook Bank Ltd
Sainsbury's Bank plc
12%
14% Santander UK Group
Holdings PLC £200 bil.
Nationwide Building
Society £198 bil.
Source: S&P Global Ratings’ database and company accounts. Data as of latest reports.
www.spglobal.com/ratingsdirect March 4, 2019 34Rating Components For Rated U.K. Financial
Institutions
Core opco Notches Holdco long-
Business Capital & Risk Funding & UGCP/ Type of
long-term of term ICR/
position earnings position liquidity SACP support
ICR/outlook support outlook
AIB Group (UK) PLC BBB/Stable Weak Strong Weak Avg/Adequate bb+ Group 2 N/A
Barclays PLC* A/Stable Adequate Strong Moderate Avg/Adequate bbb+ ALAC 2 BBB/Stable
CYBG PLC* BBB+/Stable Moderate Adequate Adequate Avg/Adequate bbb ALAC 1 BBB-/Stable
Below
FCE Bank PLC BBB/Negative Weak Strong Adequate bbb- Group 1 N/A
Avg/Adequate
Handelsbanken PLC AA-/Stable 1 N/A
Above
HSBC Holdings PLC* AA-/Stable Very Strong Adequate Strong a+ ALAC 1 A/Stable
Avg/Adequate
Lloyds Banking Group
A+/Stable Strong Adequate Adequate Avg/Adequate a- ALAC 2 BBB+/Stable
PLC*
Nationwide Building
A/Positive Adequate Strong Adequate Avg/Adequate a- ALAC 1 N/A
Society
The Royal Bank of
A-/Positive Adequate Adequate Moderate Avg/Adequate bbb ALAC 2 BBB-/Positive
Scotland Group PLC*
Santander UK Group
A/Stable Adequate Adequate Adequate Avg/Adequate bbb+ ALAC 2 BBB/Stable
Holdings PLC*
Standard Chartered Above Avg/
A/Stable Adequate Strong Moderate a- ALAC 1 BBB+/Stable
PLC* Strong
ALAC--Additional loss-absorbing capacity. ICR--Issuer credit rating. SACP--Stand-alone credit profile. UGCP--Unsupported group credit profile.
In each case the anchor is 'bbb+'. *These scores reflect the group credit profile construct.
Source: S&P Global Ratings.
www.spglobal.com/ratingsdirect March 4, 2019 35Rated U.K.-Incorporated Ring-Fenced And
Non-Ring-Fenced Bank Entities
Group Ring-fenced banks Non-ring-fenced banks
Barclays Core: A/Stable/A-1 ICR: A+/A-1 RCR Core: A/Stable/A-1 ICR; A+/A-1 RCR
Barclays Bank UK PLC Barclays Bank PLC
HSBC Core: AA-/Stable/A-1+ ICR; AA-/A-1+ RCR Core: AA-/Stable/A-1+ ICR; AA-/A-1+ RCR
HSBC UK Bank PLC HSBC Bank plc
Lloyds Core: A+/Stable/A-1 ICR; AA-/A-1+ RCR Highly strategic: A/Stable/A-1 ICR; A+/A-1 RCR
Bank of Scotland PLC Lloyds Bank Corporate Markets plc
Lloyds Bank PLC
RBS Core: A-/Positive/A-2 ICR; A/A-1 RCR Highly strategic: BBB+/Positive/A-2 ICR; A-/A-2 RCR
National Westminster Bank PLC NatWest Markets Plc
The Royal Bank of Scotland PLC
Ulster Bank Limited
Santander UK Core: A/Stable/A-1 ICR; A+/A-1 RCR N/A*
Santander UK PLC
ICR--Issuer credit rating. N/A--Not applicable. RCR--Resolution counterparty rating. Each cell shows the group status, ICR, RCR and relevant
legal entity names. *Banco Santander S.A.’s London branch acts as the non-ring fenced entity.
Source: S&P Global Ratings.
www.spglobal.com/ratingsdirect March 4, 2019 36Related Research — The Top Trends Shaping European Bank Ratings In 2019, Feb. 28, 2019 — Failure To Win U.K. Business Banking Fund Is A Setback To CYBG'S Expansion Plans, Feb. 22, 2019 — Europe's Housing Markets Ease Off The Accelerator, Feb. 19, 2019 — Countdown To Brexit: Rating Implications Of A No-Deal Brexit, Feb. 6, 2019 — The 2019 Outlook For U.K. Banks Hinges on Brexit, Jan. 10, 2019 — Everyone Passed: Stress Tests Highlight Growing Resilience Of U.K. Banks, Nov. 29, 2018 — Banking Industry Country Risk Assessment: United Kingdom, Nov. 5, 2018 — Ratings On The United Kingdom Affirmed At 'AA/A-1+'; Outlook Remains Negative, Oct. 26, 2018 — Countdown To Brexit: Financial Institutions Are Past The Point Of No Return, Oct. 11, 2018 — Rearranged And Ready: U.K. Banks Are On Track For Ring-Fencing, Aug. 15, 2018 — Our Credit Loss Estimates For U.K. Banks: 2018-2020, June 7, 2018 www.spglobal.com/ratingsdirect March 4, 2019 37
Analytical Contacts
Author Author Research Contributor
Nigel Greenwood Richard Barnes Fabrizio Serafini
London London London
+ 44 20 7176 1066 +44 20 7176 7227 +44 20 7176 0339
nigel.greenwood richard.barnes fabrizio.serafini
@spglobal.com @spglobal.com @spglobal.com
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