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Jeremy Hunt has called in Britain’s largest banks to discuss why they remain so poorly valued compared with global peers, as ministers seek feedback on how to help boost the sector and the competitiveness of the City of London.
The meeting arranged by the UK chancellor will be held on Tuesday and will include top executives from Barclays, HSBC, Lloyds, NatWest, Santander UK and the London Stock Exchange Group, according to three people with knowledge of the plans.
Franck Petitgas — the former London-based Morgan Stanley executive who was appointed as Prime Minister Rishi Sunak’s business and investment adviser in April — will also attend the meeting, two of the people said.
Hunt and Petitgas will ask the executives how ministers can help them improve their perception among international and domestic investors and boost market valuations, they said.
The government is also seeking reassurance that banks will continue to meet lending demand to galvanise economic growth, a top priority for Sunak ahead of the UK general election expected this year.
Bank stock prices have continued to stagnate despite an earnings windfall from a rapid series of interest rate rises that have allowed more generous dividends and share buybacks.
There has also been little tangible market impact so far from the so-called Edinburgh reforms to boost the City announced in December 2022. The measures included removing the cap on bankers’ bonuses inherited from the EU, relaxing ringfencing rules and offering companies incentives to list on the UK stock market.
The FTSE 350 bank index has fallen 9 per cent in the past 12 months and all major UK-listed banks trade below the book value of their assets, indicating investors do not believe in their long-term strategies.
The sharp drop in share prices of some of the country’s largest lenders is of most concern to investors.
Shares in Barclays, which is preparing a strategic review next month amid criticism of its performance in investment banking, have fallen 23 per cent in the past year. NatWest, which is part-owned by the government, has plunged 31 per cent over the same period.
Privately, bank executives place much of the blame for the declines on the loss of EU market access after Brexit and policy mis-steps such as Liz Truss’s ill-fated “mini” Budget, which undermined the UK’s reputation for sound economic management in the eyes of investors.
They also point to the Bank of England’s 2020 decision to ban banks from paying dividends during the pandemic — which enraged shareholders in the US and across Asia — and additional levies on profits on top of normal corporate taxation.
Investors were spooked by the announcement last week that the Financial Conduct Authority, the top financial regulator, is investigating historical misconduct in car lending.
While little information is available so far, analysts estimate that the sector could be forced to pay more than £4bn in compensation. The FCA’s probe has echoes of the payment protection insurance scandal, which eventually led to banks paying out more than £50bn.
Separately, at a meeting at the World Economic Forum in Davos on Thursday, Hunt, Petitgas and foreign secretary Lord David Cameron told financial services executives that they wanted the London Stock Exchange to focus on becoming the “Nasdaq of Europe”.
In that scenario, the bourse would win more lucrative tech company listings, which have been gravitating to the US in search of higher valuations and deeper market liquidity.
A Treasury insider confirmed that Hunt was meeting the banks as part of a regular series of breakfast meetings, but insisted the meeting was to discuss the “general state of play” in the economy.
“Bank CEOs are not going to be talking about their share price in front of their competitors,” the person said.
Barclays, HSBC, Lloyds, NatWest, Santander UK and LSEG declined to comment on the meeting. Sky News first reported Hunt’s request.
Additional reporting by Nikou Asgari