Shares in Britain’s largest listed banks fell sharply on 1 October as long-dated gilt yields rose to their highest level since 1998. NatWest closed 5.4% lower, Lloyds lost 4.5%, while Barclays and HSBC each fell about 4%, according to The Times. Reuters reported that the FTSE 350 banks index suffered its steepest one-day decline since 5 May. The sell-off reflected both higher funding-risk concerns and uncertainty over possible bank taxes.
The decline accelerated after reports that senior bank executives had been invited to meet finance minister John Healey before the 28 October budget. The Guardian said the invitees included Barclays, HSBC, Lloyds, NatWest, Santander UK and Nationwide. Investors were already contending with a broad government-bond sell-off and higher oil-driven inflation expectations. The UK Treasury did not comment to Reuters on possible tax measures.
BOND PRESSURE REACHED BANK VALUATIONS
The UK’s 30-year gilt yield reached 6% during the session, its highest since 1998, amid a wider rise in global borrowing costs. Higher long-term yields can improve some banking margins, but abrupt increases also pressure bond portfolios, wholesale funding and credit demand. Markets were additionally assessing the risk that expensive borrowing would weaken the economy. That combination outweighed the usual benefit of a steeper yield curve.
UK banks underperformed their continental peers during the session. Reuters said a eurozone banking index fell by about 3%, compared with a decline of more than 4% for the UK sector measure. The sharper British move came as speculation about sector-specific taxation intensified. It also followed a period in which higher interest rates had supported strong profits and tax receipts from major lenders.
BUDGET RISK REMAINS UNRESOLVED
The reported meeting does not itself establish that the government will raise bank taxes. Executives are expected to discuss the sector’s contribution, investment and the effect of any fiscal changes on lending and competitiveness. The market reaction nevertheless shows that tax policy has become a material valuation risk. Banks with large domestic franchises may remain especially sensitive to changes affecting UK earnings.
The next concrete milestones are the reported meeting and the 28 October budget. Investors will also watch whether gilt yields stabilise and whether lenders revise their funding or credit outlooks. Until the government publishes its plans, any additional bank levy remains speculative. Further share-price moves will depend on both fiscal detail and the direction of long-term interest rates.