If the markets are right, Britain’s big four banks are in for a rough ride in 2019. While equity markets generally have not been great in 2018 - the FTSE 100 is down by about 10% year-to-date - the banks have undershot even this by a wide margin.
HSBC PLC (LON:HSBA) has been the best performer but has still shed 15% of its value. That compares with falls of 22% for Lloyds Banking Group PLC (LON:LLOY) and almost a quarter at Barclays PLC (LON:BARC) and Royal Bank of Scotland PLC (LON:RBS).
The reason in one word is Brexit and the possible ramifications both politically and economically that might follow.
Corbyn the bogeyman
Royal Bank of Scotland remains 62%-owned by the UK taxpayer following its rescue in 2009, though at least, it now finally has enough cash to resume dividend payments.
If the current government collapses pre- or post- Brexit, an election might herald a Labour government led by Jeremy Corbyn.
Labour has already included a consultation over the break-up of RBS and the establishment of local public-owned banks within its manifesto.
Other Labour suggestions involve greater distances between retail and investment banks, tighter control on overdraft and restrictions on branch closures, which will put pressure on the existing bank franchises.
Even without a change of government, a no deal Brexit scenario is expected to mean a supply-side jolt to the UK economy and major knock-on effects on both the UK’s GDP and workforce.
Consumer credit and mortgages are more correlated to unemployment and corporate loans more correlated to GDP, according to RBC.
Lloyds is the UK’s largest mortgage provider while RBS and Barclays both have substantial corporate loan books.
Even so, RBC adds that the banks are in much better shape to withstand any shock than they were ten years ago.
No repeat of 2008/09
According to the broker, the financial crisis in 2008/9 saw banks fail for liquidity reasons and for underwriting standards.
Now banks are more liquid with lower wholesale funding reliance; have assets more in line with liabilities; better capital buffers and stronger lending criteria.
The Bank of England has also expanded its liquidity-providing facilities and deposit insurance has been expanded.
As a result, there are very few of the risks in the last crisis apparent today, it says.
Indeed, the big four UK banks arguably are financially as strong as they have been for a decade.
Given that, is there a contrary argument that a Brexit disaster is priced in?
Big yields all round
Lloyds, for example, is yielding 6.1% at 52.3p on forecasts of a 3.21p dividend payment in 2018.
Its financial position is such that the bank is buying back £1bn of its shares this year and plans to double this next year, according to the FT.
The bank is also undergoing what it describes as a three-year digital transformation to turn into the bank of the future at a cost of £3bn while its PPI running sore looks finally to be healing.
By 2020, broker Jeffries suggests the bank might be paying out over 4p annually, making a yield nudging 8%.
It’s a similar story at RBS (211p) and Barclays (153p), where potential yields in 2020 assuming no major Brexit-inspired recession would be well over 6%.
RBS also is likely to have a new management team with Alison Rose expected to replace Ross McEwan when he retires in 2020.
Even HSBC (653p), which is the last exposed of the big four to the UK, is forecast to yield 6% by 2020 but with the kicker of Asian growth.
Of course, those yields reflect the uncertainty not only of Brexit but also of a slowdown in the US and Asia.
And such is the fluidity, the situation might have changed completely overnight one way or the other by the New Year, though at least this time any problems will not be of the banks’ own making.