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Challenger bank shares drop as investor confidence buffeted post Brexit

Written By:
Guest Author
Posted:
July 6, 2016
Updated:
July 6, 2016

Guest Author:
Fiona Nicolson

Challenger banks have seen some of the most dramatic falls of any UK listed companies in the last two days, as fears mount that the newer institutions lack the size and track record of the bigger banks and have greater exposure to specialist lending sectors like buy to let.

Following Standard Life, Aviva and M&G’s decisions to stop investors withdrawing cash from their UK property funds, the Leave vote has impacted investor confidence. At time of writing this morning, Metro Bank was the biggest faller with a share price drop of -7.37%, -122% down from its all-time high, followed by Virgin Money Holdings, which dropped -5.02% yesterday.

Shawbrook has also seen its share price drop -6.50% with Aldermore down -5.20%, however, the price falls have eased since yesterday.

The Bank of England (BoE), which published its Financial Stability Report yesterday, gave a warning that market stress could be adversely affected by redemptions from open-ended funds.  It also cautioned that smaller banks were particularly at risk in the circumstances of a downturn in the UK’s commercial property sector.

Danny Cox, chartered financial planner at Hargreaves Lansdowne, said the challenger banks share price falls are part of a wider pressure on banks in general as the bellwethers of the UK economy.

“We’ve also watched housebuilder share prices tumble by roughly 30% with Taylor Wimpey and Persimmon suffering but this is all about a drop in confidence,” he said.

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He added that the Stamp Duty changes in April which brought a purchasing surge, the demographic pressure driving demand and the likelihood interest rates will go down not up is making this market attractive for income investors.

“We don’t expect to see an interest rate rise for five years now and if confidence returns we will see this market pick up, although we are unlikely to see transactions back at 2006/7 levels,” he added.