Challenger banks face an uphill battle as George Osborne widens levy net

The heads of the UK’s fast-growing crop of challenger banks were entitled to reach for a stiff lunchtime drink as they absorbed the first Conservative Budget for two decades last week.

 

At a stroke, George Osborne’s decision to impose a super-tax on industry profits above £25m undermined everything he has said about broadening competition in banking since 2010.

 

It is bad enough that the move will deprive the UK economy of roughly £10bn in new lending capacity, according to calculations by the British Bankers’ Association. 

 

For years, the chancellor complained that banks weren’t making sufficient credit available: other than looking in the mirror, who will he seek to blame next time that issue becomes politically contentious?

 

True, the corporation tax surcharge will only kick in at a profitability threshold that the smallest banks can still only dream of; but for those in the middle of capital-raising discussions, their task has just become that much more difficult – and expensive.

 

Many of those who have invested in challengers over the last five years are starting to see their money bearing fruit. JC Flowers, the private equity group which rescued the Kent Reliance Building Society five years ago has done well out of its transformation into OneSavings Bank and its subsequent float.

 

It was likely to have resumed selling shares once its latest lock-up expires in September, although last week’s 10 per cent post-Budget share price slump may delay that. It remains the case, of course, that there is little appetite for displays of public sympathy for banks.

 

But there is also such a thing as crass, or even stupid, policy-making. The Treasury should have exempted challenger banks from the tax surcharge.

 

After all, Osborne has tweaked, raised and amended the Bank Levy at every opportunity. It is hard to see why investors in smaller UK lenders should have much confidence that he won’t keep doing the same to them.

 

John McFarlane might not realise it, but his brutal removal of Antony Jenkins last week might have unintended consequences for Europe’s biggest credit card issuer, Visa Europe.

 

As one of Visa Europe’s largest shareholders, Barclays will exert significant influence over the company’s fate at what could be a crucial moment for negotiations about a takeover by its American sister company.

 

Convoluted discussions between the two Visas have looked in recent months as though they will finally result in a deal. Charles Scharf, the US firm’s chief executive, has made little secret of his desire to reunite the two businesses.

 

Yet the departure of Jenkins and Valerie Soranno Keating, the head of Barclaycard, will do little to provide a stable basis for negotiations.

 

Yesterday’s confirmation that Sir Mike Rake will step down from Barclays’ board to chair Worldpay as it prepares a blockbuster flotation will do little to ease that confusion.

 

The implications of Jenkins’ defenestration may only be a minor headache for Visa Europe at a time when it is contending with the fallout from Greece’s debt crisis. Nevertheless, those betting on imminent gains for Visa Inc from a takeover of its European sibling might be disappointed.

 

It has not been a golden age for the UK pubs sector. A glance at the five-year share price performance of Enterprise Inns, Mitchells & Butlers and Punch Taverns tells you that.

 

Yet there’s good reason to conclude that this isn’t a bad time for a well-run pubs operator like Stonegate (the owner of Yates’s and Slug & Lettuce) to be considering going public.

 

The company’s owner, TDR Capital, obviously shares that view, since I understand that it has appointed Barclays and Morgan Stanley to prepare it for a flotation that should take place in the next nine months or so.

 

With some of the industry’s excess capacity removed through attrition and consumer spending recovering, Stonegate’s profits could rebound this year after a revenue fall prompted by a change in reporting periods in 2014.

 

Still, its peers’ experiences suggest an IPO will need to be keenly priced if investors are going to be raising their glasses a couple of years down the line.