MSCI names banks least able to cope with populism

Lloyds_bank_branchLloyds and Santander risk losing “tangible book value” due to their exposure to rising interest rates, MSCI has told its clients. In a paper for clients that looks at how banks are set to deal with protectionist policies driven by populism and shifting governance demands, MSCI said that rising interest rates due to the “Trump Effect” and changing populist policies may actually be a loss leader for 10% of banks. “In fact, Lloyds and Santander stand out with significant loans to economically sensitive borrowers – an increase to interest rates that spurs a 30% default rate to their most vulnerable retail book could wipe out tangible book value of both companies,” MSCI told its clients. MSCI identified 21 of 77 countries that showed signs of populism, both in the east and west. Barclays stood alone as the outlier with the “most to lose and least to gain” from Trump‐like policy. Retail lending to vulnerable consumers represented 100% of tangible book value, human capital management strategies fell below global peers, and cross‐border transactions could face new costs, said MSCI. Rising governance issues for banks is primarily an issue in the east, MSCI said. “If rising populism wasn’t potential problem enough, 58% of banks are facing potential governance shift, of which 17%, including Sumitomo, UFJ, and Santander are likely targets of shareholders given weaknesses in board efficacy, lower than average [return on equity], and few limitations to potential shareholder activism,” the report said. Overall, of the 50 largest banks MSCI said that Hang Seng, China Construction, and NAB stood out for long-term preparedness, whereas HSBC, Sumitomo, and Lloyds should be avoided. ©2017 funds europe

Sponsored Profiles

SPONSORED FEATURE: Alternative thinking

Mar 16, 2017

Portfolio Manager Davide Cataldo discusses the results of the Pioneer Investments’ survey on liquid alternatives and how investors can be encouraged to increase their allocation.

SPONSORED FEATURE: Interest rate risk hedging: Swapping to other options

Mar 16, 2017

Heightened margin requirements for cleared and uncleared OTC derivatives pose a challenge for legitimate hedging activities and are driving financial institutions to explore alternative hedging...

SPONSORED FEATURE: Why blockchain could be the fund industry’s next Ford Model T

Mar 16, 2017

Blockchain aims to radically change the way investors can access funds, says Olivier Portenseigne, Managing Director and Chief Commercial Officer of Fundsquare.

SPONSORED FEATURE: Open architecture: In need of protection

Mar 16, 2017

Greater efficiency must be embraced to ensure regulatory changes do not destroy choice for fund buyers, says Bernard Tancré of Clearstream.

Executive Interviews

INTERVIEW: Finding managers that can (and do)

Apr 18, 2017

Fabrice Kremer, a fund selector at Banque de Luxembourg Investments, has berated fundamental managers for failing to beat indices, but he remains committed to active funds. He speaks to Nick...

JERSEY INTERVIEW: ‘A steady sort of place’

Mar 21, 2017

The chief executive of Jersey Finance is keen to portray the island as a stable, trustworthy jurisdiction. He talks to George Mitton.

Roundtables

ROUNDTABLE: The issue is perception

Mar 21, 2017

Our panel discuss tax transparency, the elegance of private placement and why Jersey could do more to promote itself. Chaired by Tom Cowsill in Saint Helier.

ASSET SERVICING ROUNDTABLE: Under pressure

Mar 07, 2017

Funds Europe speaks to leading Luxembourg industry figures about the growing regulatory demands on asset servicers and how to remain profitable in spite of major investments in technology.