Although bankers have learned to keep their heads down since the financial crisis, they will have been quietly popping champagne corks following last week’s surprise Tory victory. News that Ed Balls had lost his seat was greeted with cheers at City dealing desks on Friday morning.
Labour’s Ed Miliband and Ed Balls had threatened further misery for investors with their plans to break up the big four banks, and hit them with a one-off bonus tax and higher bank levy for good measure.
That won’t happen now.
Barclays (LSE: BARC), Lloyds Banking Group (LSE: LLOY) and Royal Bank of Scotland Group (LSE: RBS) all surged ahead in consequence, with Lloyds leading the field, up 6% by lunchtime.
Osborne Has Form
But that’s old news now, the election victory is in the price. Bankers now have other worries on their mind.
Chancellor George Osborne didn’t exactly go easy on the banks in his first five years in the job.
He repeatedly hiked the banking levy to fund his spending commitments or spike his political opponents’ guns, lifting it an incredible eight times in just four years.
And Prime Minister David Cameron has committed himself to a referendum on EU membership by 2017 at the latest, which should also cast a cloud over the big banks.
Gulliver’s Travels
The banks have meekly taken their punishment since the financial crisis, grudgingly accepting their status as public enemy number one.
But now they are starting to talk tough, led by Stuart Gulliver, chief executive at HSBC Holdings (LSE: HSBA), who has threatened to quit the UK in protest at the banking levy, which hits it harder than any other bank, even though it didn’t need a bailout and 80% of its revenues come from outside of the UK
Gulliver has also warned of the dangers of a Brexit vote in the EU referendum, which might also inspire it to relocate its headquarters. Paris has even been mooted as a rival venue.
No Bonus, No Fun
I would expect Mr Osborne to respond to the first threat by going easy on the banker bashing. I would be surprised if he increased the banking levy again or attacked bonuses. Politically, what’s the benefit? He certainly doesn’t want to be blamed for forcing a major bank out of the UK, with the resulting losses in jobs and tax revenues.
The EU referendum will depress investor enthusiasm in the weeks before the referendum, even though I would ultimately expect the UK to vote to stay in.
Another question is what happens to Scotland in the wake of the SNP landslide. Both Lloyds and RBS have their headquarters in Edinburgh, and threatened to head south of the border if the Scots voted for devolution. They didn’t, but what if they get another vote?
The Tory victory is undeniably good news for the banks. But if it pushes the UK out of the EU, or Scotland out of the UK, it won’t be seen as good news for long.
