S&P retains negative outlook on several UK banks due to Brexit

Standard&Poor's reaffirmed its negative outlook on the long-term credit rating of several of the UK's largest lenders due to the marked downside risks it sees for its base case of a 'hard' but orderly Brexit process.

To reach a Brexit deal, authorities on both sides of the Channel would need to overcome the sheer technical complexity involved, within a limited timeframe.

They would also be faced with the multiplicity of economic and political interests, S&P said.

"We continue to believe that U.K. banks' strengthened capital, liquidity, and funding profiles provide considerable flexibility to manage an extended period of economic and market uncertainty, but that they could weaken in a marked downside scenario."

In particular, S&P said it would be watching for signs of a "significant" correction in asset prices that could push credit losses "well above" their long-term average or of significant outflows of foreign capital or substantially worse than projected declines in foreign direct investment.

On a cheerier note, S&P's base case scenario was also for a transitional agreement to be put in place, thus avoiding the risk of a regulatory cliff-edge when it left the European Union in March 2019.

The ratings agency therefore reaffirmed negative outlooks for the credit ratings of Barclays (including its core subsidiaries), HSBC Bank PLC, Lloyds Banking Group PLC (including its core bank subsidiaries), and Santander UK PLC.

"The negative outlooks primarily reflect our view that we could lower the ratings on these institutions if we see a materialization of the economic risks for the U.K. banking industry," it said.

However, the outlook on Santander UK Group Holdings PLC's debt was kept at 'stable' given the high probability that the parent group would offer support if needed.

RBS's outlook was also maintained at 'stable' due to its strong capital buffers and continued progress with restructuring the group, which would offset the headwinds which might arise.

Then current long and short-term counterparty credit ratings for all of the above lenders was reaffirmed.

In its base case, S&P forecast UK gross domestic product would expand by 1.7% in 2017 and at an average of 1.3% a year between 2018 and 2020.