FTSE 100 giant Natwest and Close Brothers set to benefit from Labour government, analysts say

UK banking stocks are poised to enjoy a “good backdrop” if Labour wins the general election on 4 July, according to a leading broker, highlighting benefits for Natwest and Close Brothers.

RBC Capital Markets analysts said in a note that Labour’s general “pro-growth” stance could benefit the banking sector, particularly if the government chooses to soften Basel 3.1 capital requirements and make sure they do not inhibit small business lending.

RBC said this change would be most helpful for Natwest and Close Brothers. The former is among the best performing stocks on the FTSE 100 so far this year, boosted by bumper profits, a new management team and an improving economic outlook.

Meanwhile, Close Brothers’ shares have sunk 43 per cent this year over concerns of compensation fees tied to a City watchdog review into now-banned commission arrangements on car loans, which the bank is considered the most exposed to in relative terms.

Ahead of the election, both Labour and the Tories have pledged to ensure that small and medium-sized enterprises (SMEs) can access the finance they need.

The Prudential Regulation Authority’s first round of the Basel rules proposed removing the SME Supporting Factor, which would force SME lenders to hold a higher level of capital against loans to the sector.

The proposals have been criticised by many in the industry, with research suggesting it could increase the cost of lending by around a third.

Conversely, RBC noted a “whiff of rent control” from Labour’s manifesto that could pose risks to buy-to-let specialists Paragon Banking Group and Onesavings Bank. However, analysts said more detail was required.

They added that “uncertainty” around the government’s plan to offer part of its stake in Natwest to retail investors is a “headwind, but not game-changing”.

Polls widely expect Keir Starmer’s party to achieve a majority next Thursday.

RBC noted that the performance of London’s blue-chip FTSE 100 index had seen a “remarkably similar” performance over the last three to six months compared to the last time the government switched from Tory to Labour in 1997, which delivered “notably strong” gains on either side of the election.

Its analysts identified financial services, housing, retail, transport and energy as among the most exposed sectors of the stock market to a potential Labour victory.

RBC named AJ Bell and St James’s Place as more vulnerable to pension tax relief changes as they have the highest proportion of pension business in terms of assets under management.

However, they noted that wealth managers should be less impacted in the short and medium term as most of their pension-related inflows are saved over a number of years.

RBC added that VAT on private school fees could dent client funds, particularly for firms with higher average ages like Rathbones.