In terms of UK banks, our focus for us is on:
Banks domiciled in the UK, such as HSBC and Standard Chartered, but that are extremely well diversified geographically and therefore less exposed to Brexit
National champions like Lloyds and NatWest (previously RBS), where fundamentals are extremely strong and focused on domestic retail banking
In both cases, these are banks with significant excess capital positions, for example NatWest (RBS) has a CET1 ratio of 17.2% which represents GBP 15 billion of headroom to maximum distributable amount (MDA).
Although Brexit is a risk, we believe that given the very robust fundamentals of the sector and as banks have been preparing for Brexit for the past three / four years, the UK banks we own are very well positioned no matter the outcome. UK banks are subject to very stringent stress tests from regulators every year, and based on the last set of results, UK banks are able to withstand an extreme macro shock with the average CET1 ratio of the sector falling from 15% to 10%, which is more than 2x the amount of capital pre-global financial crisis.