British Banks Brace for Election Wobble

Shares in Britain's banks fell Friday on worries about the economy faltering in an uncertain U.K. political climate.

Prime Minister Theresa May said she will form a government and is looking for support from the Democratic Unionist Party, a small Northern Irish party, after her Conservative party failed to win a majority in Thursday's snap election.

Shares in Royal Bank of Scotland Group PLC, Barclays PLC, Lloyds Banking Group PLC and other domestic lenders only marginally improved from earlier losses following Prime Minister Theresa May's statement on Thursday's snap elections early Friday afternoon. The Euro Stoxx index was up 0.3%.

Bank analysts said consumer confidence could wobble if Britain's plan to leave the European Union is delayed or threatened by the political instability. U.K. economic growth slowed in the first quarter as consumers pared back spending, and banks have been starting to pull back from a four-year lending binge in unsecured credit.

Chirantan Barua, an analyst at Bernstein, said the election could by a catalyst for draining excess liquidity from the banking system. He said the U.K. could find it hard to draw in capital and investments until the political situation clarifies.

Shares in Royal Bank of Scotland Group fell as much as 4% early Friday on the heightened chance of the main opposition party gaining power if a second election is needed. The Labour party in its election manifesto said it would break up RBS into smaller local lenders, which analyst say would prolong a nine-year effort to get the bank out from under 71% state support.

Barclays and Lloyds Banking Group fell 1% and Metro Bank fell 3%. Rising gilt yields would add to the banks's funding costs and squeeze margins.

A fall in sterling Friday was good news, though, for the U.K.'s Asia focused banks, HSBC and Standard Chartered. The two banks's stocks became cheaper to buy with dollars, and most of their revenues aren't in pounds. HSBC makes about 25% of its revenue in the U.K. while Standard Chartered has only minimal sterling-denominated revenues.

--Margot Patrick

(END) Dow Jones Newswires

June 09, 2017 23:46 ET (03:46 GMT)