RBS Tumbles Most in Two Years on Risk of Labour Government

(Bloomberg) -- Royal Bank of Scotland Group Plc plunged more than 10 percent as speculation mounts that British Prime Minister Theresa May’s government may collapse, leaving the bank facing an uncertain future under a possible Labour-led administration.

Jeremy Corbyn, the Labour leader, has vowed to consider breaking up the state-controlled lender to create new local public banks. RBS lost about 2.5 billion pounds ($3.2 billion) in market value earlier as British lenders such as Lloyds Banking Group Plc and Barclays Plc also fell.

“RBS has made major progress to leave its past problems behind. So, with the bank on track again to refocus on its business, the current political turmoil is not really helpful,” said Michael Huenseler, who helps oversee about 22 billion euros at Assenagon Asset Management in Munich. If Corbyn got in, “breaking up the bank is quite a complex task and will be intensively scrutinized by the financial authority. So, for the time being probably more bark than bite.”

May’s government and her day-old Brexit deal are on the verge of unraveling after several of her ministers resigned on Thursday morning. While a no-deal Brexit risks complicating the way banks do business in the European Union, the ouster of May would potentially bring Corbyn, a left-wing firebrand, closer to power.

What’s more, for the banks, leaving the EU in March without an agreement on the exit terms or a two-year transition period poses risks to the U.K. Further damage to an already weakening economy, weighed down with ballooning household debt and lackluster foreign investment, raises the prospect of increased delinquencies and declining loan growth.

“RBS is tanking as traders fear the possibility of a Labour led government,” said Gary Greenwood, analyst at Shore Capital. “I’d like to see how it would plan to nationalize RBS though, as they would be a forced buyer in that scenario, and big funds with deep pockets aren’t just going to roll over and sell to the Government on the cheap.”

Meanwhile, Britain’s Financial Conduct Authority said it’s “in regular contact” with the nation’s banks, responding to a Reuters report that Bank of England Governor Mark Carney requested a conference call between regulators and lenders to discuss the current market turmoil and the pound’s plunge.

©2018 Bloomberg L.P.