Moody’s Corporation (NYSE: MCO) have today lowered the UK banking sector’s outlook from stable to negative.

Moody’s Corporation, often referred to as Moody’s, is an American business and financial services company. It is the holding company for Moody’s Investors Service, an American credit rating agency, and Moody’s Analytics, an American provider of financial analysis software and services

The credit ratings agency said the “deteriorating” operating environment will weigh on bank asset quality and profitability.

On top of that, low interest rates – and increased competition in the mortgage market – are “eroding” net interest margins for UK lenders.

Breaking this down by firm, it is clear to see why Moody’s have made this change.

Lloyds Banking Group

At the end of October, Lloyds Banking Group PLC (LON: LLOY) saw their shares crash following a poor quarterly update. The firm saw a 97% fall in pre-tax profit for the third quarter from last year.

Additionally, profit before tax for the third quarter fell 97 percent to 50 million pounds from £1.82 billion last year. Lloyd’s are one of the banks however that have appeared to gain some ground, after posting revenue gains in trading updates after gloomy performance.

The bank’s chief executive, Antonio Horta-Osorio, said: “I am disappointed that our statutory result was significantly impacted by the additional PPI charge in the third quarter, driven by an unprecedented level of PPI information requests received in August”.


FTSE100 (INDEXFTSE: UKX) listed HSBC (LON: HSBA) are another household name who have experienced the slump, and have announced changes to their structural organization as well as a strategy to lower costs leading to job cuts.

To make matters worse, HSBC joined a long list of multinational firms who had pledged job cuts. HSBC announced that they would cut the size of their workforce in the UAE in November, and this made gloomy reading for shareholders and seniority at the global bank.

Noel Quinn commented on the banks performance “Parts of our business, especially Asia, held up well in a challenging environment in the third quarter. However, in some parts, performance was not acceptable, principally business activities within continental Europe, the non-ring-fenced bank in the UK, and the US.”

Deutsche Bank

Deutsche Bank (ETR: DBK) have collapsed across 2019, with the firm now fighting to stay afloat in a cutthroat market. Deutsche Bank saw a €3.1 billion loss at the end of July, following a strategy which pledged transformation after they axed 18,000 jobs at the end of June.

It seems that this change did not help the German lender, as the firm once again reported a devastating loss at the end of October, which alarmed shareholders.The German bank reported an $924 million loss in their third quarter, which has caused shares of the German bank to sink after a streak of poor performance reports.

“One has to look very hard to find anything positive in Deutsche Bank’s results this quarter,” said Octavio Marenzi, CEO of capital markets management consultancy Opimas.

Just from these three examples, it is clear as to how and why Moody’s have speculated uncertainty in the UK banking scene, however some firms have gone against this trend and managed to pull a rabbit out of the bag.


Barclays (LON: BARC) were a firm which had a positive performance in the second half of this year amid the global decline. In August, the firm saw an 82% rise in its half year profits, which alluded to strong growth and positive trading in testing conditions.

Barclays group profit before tax amounted to £3 billion for the half year ended 30 June, up 82% on the £1.7 billion figure from the year before. Meanwhile at Barclays UK, profit before tax for the period was £1.1 billion, compared to the £0.8 billion recorded for the first half of 2018.

“This was another resilient quarter of performance. For the second quarter in succession Barclays generated an attributable profit of over £1 billion, and delivered EPS of 12.6p for the first half of 2019,” James E Staley, Group Chief Executive Officer, commented on the results.

“Barclays UK continued to build its mortgage and deposit balances, with stable credit metrics. This has partially offset the reduction in net interest margin from increased levels of customer refinancing, and lower interest earnings from UK cards balances. Digital engagement with our UK customers is at an all time high, with just under 8 million customers now digitally active on the Barclays App,” James E Staley continued.

Standard Chartered

A notable performance, however came from Standard Chartered (LON: STAN) who reported strong gains in October. The report published showed pre-tax profit for the three months that ended in September grew 16%.Net profit for the quarter was $772 million, increasing 3% from the $752 million Standard Chartered reported a year ago.

Standard Chartered shareholders got the icing on the cake, when they voted to cut the pension allowance of their CFO and CEO and won the approval of the senior board, which reflected a strong period of trading.

Group CEO Bill Winters said: “Our strategy of the last few years has progressively created a stronger and more resilient business as evidenced by a 16% increase in underlying profits in the third quarter. The continuing execution of that strategy remains our priority, enabling us to face the more challenging external environment confidently.”

Bank of Ireland

Additionally, the Bank of Ireland (LON: BIRG) produced a sound third quarter performance when it reported that it met market expectations. The Irish bank recorded net interest income of €1.07 billion, which pleased shareholders.

“The extension of the group’s longstanding partnership with the Post Office has further enhanced alignment of both parties, to drive mutual benefits, and is consistent with the group’s strategy to improve returns in our UK business,” Bank of Ireland said.

“The group’s market share of new mortgage lending in Ireland averaged about 23% in the first 8 months of 2019 with strong positive momentum in market share of mortgage applications during the quarter. While SME lending demand has been impacted by Brexit uncertainty, we continue to deliver good year on year growth in both application and drawdown activity,” the Irish Bank concluded.

Following, the case studies from the three banks above, it is clear to see why Moody’s have given such a glum outlook. The American credit ratings agency said the following:

Moody’s Comments

“The UK’s economy is weakening, making it more susceptible to shocks, and prolonged uncertainty over Brexit has reduced the country’s growth prospects,” said Laurie Mayers, associate managing director at Moody’s. “Meanwhile, persistently low interest rates and increased mortgage market competition are eroding the net interest margins of most UK lenders. These challenges will outweigh the sector’s strong capital and liquidity buffers, and an expected decline in banks’ conduct costs.”

Moody’s believes “problem loans” will increase moderately on weaker economic growth and higher unemployment.

“Even so, banks’ capital will remain broadly stable as they will likely counterbalance lower organic capital generation by reducing their shareholder distributions,” Moody’s added.

In compliance with EU regulations, UK lenders will continue to issue loss absorbing debt, wheich Moody’s said will create an “additional buffer” to protect depositors and bondholders.

The “persistently” low interest rates and “tough competition” in the mortgage market will lead to a “modest deterioration” in profitability, Moody’s said.

“In addition, banks will continue to reinvest cost savings achieved in enhancement of IT platforms and digitalisation of processes and channels. Some large lenders, however, will likely report higher net profit in 2020, helped by a sharp fall in conduct costs after an August 2019 deadline for compensation claims for mis-sold payment protection insurance,” the credit rater added.

It seems like a long road to recovery for the global banking scene, and on a domestic scale the picture looks even more dull.

Amid the tensions from the Brexit negations, the General Election on December 12th, the ongoing saga between China and the United States and political tensions in Hong Kong, the state of the global finance industry has not looked so gloomy since the financial crash of 2008.

Banks, investors, consumers and governments will have to produce a monumental effort in order to work together and fight this slump in tough trading conditions coupled with both political and economic uncertainty.

“A deteriorating operating environment weighs on banks’ asset quality and profitability, and low interest rates and increased competition in mortgages reduce net interest margins of most UK lenders,” Moody’s said in a report on Tuesday.

“The UK’s economy is weakening, making it more susceptible to shocks, and prolonged uncertainty over Brexit has reduced the country’s growth prospects,” said Laurie Mayers, Associate Managing Director at Moody’s Investors Service.

“Our base case is that the UK and the EU will ultimately reach a free-trade agreement, but it is increasingly unlikely that any such deal will substantially mitigate the negative economic impact of Brexit,” Moody’s concluded.

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