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LONDON (Alliance News) - Shares in London-listed banks Friday reacted positively as the Conservative Party looked set for a surprise majority victory in the UK's General Election.
The Conservatives have secured 323 seats so far against Labour's 228 seats, putting the Tories on course for a majority with 638 of 650 seats declared. The Scottish Nationalist Party won 56 seats, missing out on just three of those available in Scotland. The Liberal Democrats have had a disastrous election, securing just eight seats.
Lloyds Banking Group PLC shares soared by 6.1% to 87.10 pence on Friday morning, Royal Bank of Scotland Group shares rose by 5.1% to 349.10p, while Barclays PLC shares moved 4.0% higher to 258.85p. HSBC Holdings PLC was up 0.9% at 636.40p, while Standard Chartered PLC was up 1.4% at 1,049.00p, as the Asia-focused lenders continue to review whether to move their headquarters from the UK.
The outcome was welcomed by Anthony Browne, the chief executive of the UK's British Bankers' Association, who said that a "clear result" in the General Election was "good news" for the economy.
"We will look to work with the new Government in a constructive manner. We need to focus now on implementing the reforms that have already been legislated for, and ensure that banking ? our biggest export industry ? remains globally competitive," Browne said in a statement.
But the market reaction doesn't necessarily mean that the Conservative Party will go easy on the banks, which had feared even tougher regulation in the event of a government dominated by the Labour Party.
"Let's be clear, a Tory victory in itself is not Banking friendly, but it appeared to be better for the UK Banks than the alternatives. Given the election outcome, investors can breathe a sigh of relief that the status quo on banking policy is set to be maintained," Chintan Joshi, European banking analyst at Japanese investment bank Nomura, wrote in a research note.
Labour had planned to raise the bank levy implemented by the Conservative-led coalition in 2011 in order to pay for expanding free child care, while the party had also promised to finance guaranteed jobs for young people in unemployment with a tax on bankers' bonuses. A Conservative government puts paid to Labour's proposals but the Tories have made promises of their own for the banking sector.
The Tories have made clear that the levy on big banks' balance sheets will be kept in place, a promise that has led HSBC and Standard Chartered to give close thought to leaving the UK and moving their headquarters to Asia. The party also wants to restrict the major lenders ability' to cut their tax bills by offsetting profits against losses incurred in the past, and its plans also mean that banks will have to ring fence their high street operations from investment banking activities by 2019, an expensive and time-consuming process.
The Conservative pledge to hold a referendum on the UK's membership of the European Union by the end of 2017 also presents a future uncertainty that could have implications for London's reputation as a global financial centre and the banks, in contrast to Labour's promise to reform the EU as a continued member.
James Invine, an equity analyst at French banking group Societe Generale, said an EU exit would be "most negative" for Barclays.
The Conservative plan for Lloyds Banking Group is clear. A GBP20 billion bailout rescued Lloyds in 2008-09 as the bank bought HBOS in an ill-fated acquisition, giving the taxpayer a 43% stake in the lender. In coalition with the Liberal Democrats after the General Election of 2010, the Conservatives have seen that stake reduced to 20.95% and in their campaign for this year's vote promised to complete the group's return to private ownership.
Future sales of Lloyds shares will include private shareholders, a break from selling exclusively to institutional investors so far, under Tory plans, with members of the public set to be granted the perk of being able to buy equity in the bank at a discount to the market price.
"As a bank that is more than 90% UK, it is most exposed to specific UK trends. The Conservatives pledged to sell its holding in Lloyds to retail investors, which some investors have taken to mean that the slew of anti-bank policies may be coming to an end," Societe Generale's James Invine wrote.
The future for Royal Bank of Scotland Group PLC is harder to call. Unlike Lloyds, which has resumed dividend payments after reporting a profit for 2014, RBS has not made a profit since 2007. The taxpayer, which rescued the bank at a cost of GBP45 billion, still owns about 79% of RBS.
Analysts think the SNP's success in Scotland could spell danger for RBS further ahead, especially in the event of a repeat of the referendum on independence seen in September 2014, when voters rejected a separation from the UK.
Societe Generale's James Invine said "sentiment on RBS would likely suffer from a second referendum on Scottish independence".
Developments around the bank levy, which hits HSBC and Standard Chartered hardest, will be watched closely over the course of the next parliament.
"We would venture that policymakers now have an opportunity to reverse in parts some of the more business unfriendly policies like the UK Bank Levy on global operations," Nomura's Chintan Joshi wrote.
James Invine of Societe Generale said a "Conservative government is more likely than a Labour government to make overtures to both banks [HSBC and Standard Chartered] to remain domiciled in the UK".
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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