UK bank shares weak on credit downgrades as possible scrapping of banking levy by Chancellor George Osborne eyed

A number of UK bank shares were unsettled today by downgrades from a credit ratings agency as the sector also eyed talk that Chancellor George Osborne could unveil plans to scrap the banking levy in his Mansion House speech tonight.

Standard & Poor’s downgraded its ratings for several European banks, including Barclays, Royal Bank of Scotland, and Germany’s Deutsche Bank, saying it considers government support for these banks to be uncertain. Barclays shares fell 2.5p to 259.1p, while Royal Bank of Scotland lost 0.9p to 351.7p.

The agency affirmed its ratings on Lloyds Banking Group and HSBC, stating that their the outlooks are stable, but their shares still fell – Lloyds slipped 0.3p lower to 86.2p, while HSBC was off 4.1p, at 609.9p.

HSBC’s decline extended falls recorded yesterday after it announced an aggressive turnaround plan. The bank said it will deliver annual cost savings of around £2.9billion to £3.3billion by the end of 2017, while also slashing 10 per cent of its global workforce.

But one bank bucking the share price slide is emerging markets focused Standard Chartered, as investors hope new boss Bill Winters will follow HSBC and announce a similar, brutal turnaround strategy.

Its share 5.0 per cent, or 46.5p higher to 108.8p – taking it to the top of the FTSE 100 leaderboard.

Mike van Dulken, at Accendo Markets, said: ‘Standard Chartered is top of the pops this morning, following yesterdays’ strategy update by Asia/emerging markets-focused peer HSBC that it was aiming for significant cost cuts and operational scale-back.

‘Is the hope that with fresh eyes at the top (new CEO Bill Winters will take the reins today) Standard Chartered will see a similarly aggressive and shareholder-pleasing restructuring plan delivered?’.

In his first day on the job Bill Winters wrote a letter to staff – seen by Reuters – stating that the bank needed to strengthen its finances, and simplify and restructure to achieve better returns.

He said: ‘We need to reinforce our foundations; streamline our business; strengthen our financial position; and re-orient the bank for better returns on our capital.’

He added: ‘Our capital strength is a key priority. Capital strength is a competitive advantage, especially in tough economic times. We are reviewing all aspects of our capital strength as part of our broader business review,’

Over the past two years the bank, which specialises in Asia, the Middle East and Africa, has been rocked by a faltering financial performance, sliding share price, regular scrapes with US regulators and concern that it may be short of capital compared to peers.

Traders said Standard Chartered also received a boost from a report in The Times saying that George Osborne will spell out the end for the £3.5billion-a-year bank levy in his annual Mansion House speech.

The move by the Chancellor is seen as an attempt to appease the City’s biggest financial institutions and stop them moving their headquarters to other financial hotspots – such as Hong Kong and New York.

It follows a suggestion yesterday by Canary Wharf-headquartered HSBC that it could leave the UK by 2017, having already launched a review of its domicile. The global lender also blamed the banking levy for its planned 8,000 job cuts in the UK as the tax cost the bank $1.1billion (£720million) last year.

Ending the levy would mark a significant move by the Chancellor, who introduced it in his first budget in 2010.

It has been raised nine times to keep up with the pace of the shrinkage in the bank assets on which it was charged.

Due to the size of their global assets both HSBC and Standard Chartered have paid the lion’s share of the tax.

The Treasury is expected to move to replace the tax with a new corporation tax surcharge levied solely on UK assets, rather than global balance sheets, as now.

This could mean that banks currently paying a lower share of the levy, such as Barclays, Lloyds Banking Group and Royal Bank of Scotland, will contribute more.

Tony Cross, market analyst at Trustnet Direct, said: ‘Standard Chartered is leading the pack off the back of speculation that George Osborne will announce changes to the controversial banking levy at tonight’s Mansion House speech – a move that would pass more of the burden to those banks with bigger UK asset bases like Barclays and RBS, both of whom are currently languishing – a situation that hasn’t been helped by an S&P downgrade on the pair, in the wake of EU regulatory change.’ .

On top of the banking levy, Osborne is also expected to unveil plans to push ahead with tough new fiscal rules that will force governments to run a surplus when the economy is in good health.

His speech tonight will include plans for a ‘balanced budget’ principle policed by an independent watchdog.

Claiming the recent UK election result – which gave the Conservatives a surprise, slim majority – represented a ‘comprehensive rejection of those who argued for more borrowing and more spending’, Osborne will also challenge Labour to back the new rules in a Commons vote later this year.

The new rules will force future ministers to spend less than is coming into the public coffers when the economy is operating ‘normally’.

Osborne is due to give more details of the scheme in his post-election Budget next month – the second of the year.

But he will tell City figures at the Mansion House tonight that he wants a ‘new settlement’ to protect the country from an ‘uncertain future’.

He will say: ‘I come to move Britain from crisis and recovery, and towards a new settlement of responsibility and prosperity.

‘Without sound public finances there can be no lasting economic security – and without economic security there can be no lasting economic prosperity.

‘So the new settlement for the British economy I talk about starts with a new settlement in the way we manage our national finances.

‘With our national debt unsustainably high, and with the uncertainty about what the world economy will throw at us in the coming years, we must now fix the roof while the sun is shining.

‘Indeed we should now aim for a permanent change in our political debate and our approach to fiscal responsibility – just as they have done in recent years in countries like Sweden and Canada.’

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