The U.K.’s largest lenders rallied, led by Lloyds Banking Group Plc, after Britain’s Conservatives pulled off a surprise election victory, with David Cameron set to return as prime minister.
Lloyds jumped as much as 8.4 percent, the biggest intraday gain since August 2013, while Royal Bank of Scotland Group Plc increased as much as 6.6 percent. Barclays Plc surged as much as 6.6 percent, while HSBC Plc was up 1.2 percent and Standard Chartered Plc advanced 1.5 percent.
The election victory ends a period of uncertainty for investors after opinion polls showed opposition leader Ed Miliband’s Labour Party neck and neck with Cameron’s Conservatives. Labour had spooked the City of London, as Britain’s financial district is known, with a pledge to tax bonuses and increase a levy on lenders’ assets further.
“A Labour win would have been seen as negative for the banks,” said Gary Greenwood, an analyst at Shore Capital Group Ltd. in Liverpool, England. “That’s on the basis they would be more interventionist. It’s a case of no change, bringing certainty markets like.”
With counting ongoing, the BBC forecast the Conservatives to take 329 of Parliament’s 650 seats to Labour’s 233 seats, a result that would allow Cameron to ditch his Liberal Democrat coalition partner of the past five years and govern alone. The Scottish National Party are the third-largest in parliament.
“The total sweep by the SNP in Scotland will reopen the case for the likes of Lloyds and RBS to move back their registered offices to London,” said Chirantan Barua, an analyst at Sanford C. Bernstein Ltd. in London, who called the outcome of the election “great” for banks. “A second referendum in this term of the government looks highly likely and investors would want the banks to relocate.”
Moving headquarters would cost the Edinburgh-domiciled banks as much as 1 billion pounds ($1.6 billion) each, Barua said. RBS and Lloyds said before the Scottish independence vote last September they would move to England if the country chose to dissolve the 308-year-old union. They scrapped the plans after 55 percent of Scots rejected independence.
The Conservative victory also eases pressure on HSBC and Standard Chartered to move abroad. HSBC has said it’s considering whether to relocate to Asia to avoid higher taxes at home. The lender, which paid 750 million pounds towards the bank levy last year, sees the tax burden as a threat to dividend growth, said Chief Executive Officer Stuart Gulliver.