Of course, HSBC, which generates two-thirds of its profits in Asia, is a partial exception, although exposure to China is clearly a mixed blessing at the moment. Many analysts believe that the latest Barclays rejig will result in the bank becoming even more focused on the UK. Yay!
And the real problem with their low valuations is that it isn’t much of a problem. Many bargain-basement UK companies are currently being snapped up by foreign buyers, but there’s no way regulators will allow that to happen to banks. Nor will they let the big four acquire each other, as this would reduce competition yet further.
Meanwhile, the sheer volume of post-crisis rules, although necessary, has made the regulatory moat around the bigger firms even wider and deeper.
Despite being the largest challenger bank in the UK, Virgin Money’s cost of equity was in the low teens, while its return on equity struggled to escape single digits, meaning it was burning through shareholder value. No wonder its owners are tapping out.
The UK banking industry has come to resemble a stagnant pond. Now and then a sprat will swallow a minnow; flashy fintechs might create a bit of a buzz. But the ecosystem is low on the oxygen of real competition. UK banks are safer now. However, they are medium-sized fish sluggishly drifting through a shrinking backwater.
