The Bank of England (BoE) has kept interest rates on hold at the April meeting of the Monetary Policy Committee (MPC). The MPC also set out a range of possible economic impacts from the Iran war, the worst of which might entail forceful interest rate rises, while less damaging outcomes may not require any increase at all. Facing deep uncertainty about the duration of the conflict and the damage it will wreak on the UK economy, the MPC voted 8-1 to keep the BoE’s benchmark Bank Rate at 3.75%. BoE Governor, Andrew Bailey, said the BoE would likely face a difficult judgement call over the coming months on whether to raise interest rates as waiting for hard evidence of inflation pressures would probably leave things too late. The consensus view of the latest monthly Reuters poll of economists predicts that the BoE will hold interest rates steady through the rest of the year. Respondents broadly stuck to the same steady policy views as last month but revised up their inflation outlook.
A UK consumer group, Consumer Voice, has said it has filed a legal challenge to the proposed £9.1 billion redress scheme to compensate motorists for mis-sold motor finance, a move that the Financial Conduct Authority (FCA) has described as disappointing. Last month, the FCA unveiled a scaled down final version amid a pushback from lenders. The financial services arms of carmakers Volkswagen and Mercedes-Benz and the car finance arm of Credit Agricole are also appealing the plans. Lenders including Close Brothers Group and Santander UK Group have decided not to challenge the FCA’s redress scheme which the FCA said would allow consumers to receive compensation quickly.
Moody’s Ratings (Agency) has taken multiple rating actions on long-term bank deposits and senior unsecured debt ratings as well as on other ratings derived from these, reflecting the introduction of full depositor preference across the European Union (EU). This will result in the introduction of a widely harmonised full depositor preference over senior unsecured debt instruments across the EU. Before full depositor preference, senior preferred debt ranked alongside most deposits (except insured/covered deposits, which already had a higher ranking in most countries). This meant senior preferred bondholders shared losses pari-passu with most depositors in an insolvency situation. Full depositor preference has changed that by pushing all deposits above senior preferred. The UK continues to operate on a pari-passu basis. Banks affected include: ABN Amro Bank NV; Banco Santander SA; Bank of Ireland; BNP Paribas SA; Commerzbank AG; Danske Bank AS; ING Bank NV; Nordea Bank ABP; Rabobank; Svenska Handelsbanken AB; and Swedbank AB.
During the month, Moody’s reaffirmed the long-term Bank Deposits rating of Aldermore Bank PLC but lowered the outlook to “Negative” to reflect the stated intention of the Ultimate Parent (FirstRand Limited) to exit the UK Group operations (following the Financial Conduct Authority’s Policy Statement on the final rules for the motor finance consumer redress scheme) which is likely to result in a potential shift in strategic priorities and uncertainty around future support and capital allocation. Moody’s also raised the outlook of China Construction Bank Corporation to “Stable” as part of a general rating action that resulted from a recent change to the China sovereign rating to reflect sustained domestic growth and effective debt management, despite the continued downturn in the property sector and a likelihood of slower export growth. S&P has raised the outlooks for FirstRand Bank Limited to “Positive” as part of a general rating action on the South African banking sector to reflect pending resolution plans whereby domestic systemically important bank resolutions would happen to ensure operating continuity and full protection of different classes of liabilities. Meanwhile Fitch raised the outlook for Citibank NA and Citibank Europe plc to “Positive” to reflect progress in the Group’s strategic execution that is gradually leading to improving earnings quality and lower risk profile from the reduction of operational and regulatory risks, supported by organisational simplification and structural technological investment. Fitch also reaffirmed the long-term credit ratings of Deutsche Bank AG and raised the outlook to “Positive” to reflect progress in establishing a more balanced earnings profile by increasing the profitability of more stable activities which is expected to improve operating performance, increase resilience and support future capital generation. In addition, Fitch upgraded the long-term credit ratings of UBS AG and UBS Switzerland AG to reflect agency expectations that Group execution risk related to the integration of Credit Suisse (CS) has materially diminished, particularly following the completion of the migration of CS’s Swiss booked business to the Bank.