UK lenders such as Lloyds Banking Group PLC (LSE:LLOY), Barclays PLC (LSE:BARC) and NatWest Group PLC (LSE:NWG) are well-positioned despite the market’s confusion over the UBS-Credit Suisse deal.
That, at least, is the conclusion of Shore Capital, the Liverpool-based independent investment group.
Following the rescue of Credit Suisse by rival UBS, brokered by Swiss regulator, Shore remains confident in the strength of the domestic banks despite market confusion caused by the $17 billion write-down of AT1 bonds.
A research note suggests they are well-prepared to withstand the current economic downturn, with strong capital, funding, liquidity, and lower-risk asset bases thanks to more than a decade of regulatory tightening.
It acknowledges the UBS-Credit Suisse deal has averted a potential collapse of the latter, which they consider a positive development.
However, the write-down of AT1 bonds has spooked markets, leading to a likely increase in the cost of AT1 issuance and consequently raising the overall cost of capital for banks in the short term.
These bonds are a common component of the capital stacks of major and some smaller banks.
Despite the confusion surrounding the UBS-Credit Suisse deal and potential short-term volatility in share prices driven by sentiment, Shore encourages long-term investors to take advantage of the attractive buying opportunity this situation has created in the UK banking sector.
The research firm reiterates its belief that the UK banking system and its major banks are not in imminent danger of collapse.