Defence debanking debunked

Defence has shed its status as a "sin stock", but some firms complain they still can't get a loan. What's really going on? View in browser Barney Macintyre • Friday 27 June 2025 Dear friend, Welcome to the Boardroom Sensemaker, The Observer's weekly newsletter for the board chairs, directors and executives in charge of Britain's biggest businesses.         Long stories short UK vehicle production fell to its lowest level since 1949. Centrica plans to take a 15 per cent stake in Sizewell C nuclear plant. Shell denied reports it was in active talks to acquire BP.                                           Defence debanking debunked Financing for defence companies by the UK's four largest banks – Barclays, Lloyds, NatWest and HSBC – has risen by a fifth since 2022, according to data shared with The Observer.   So what? In an age of insecurity and renewed commitment to Nato, the increase to £10.8 billion in 2024 is hardly unexpected. More surprising is how tricky it has been to get loans signed off. Banks have been caught between campaign groups publicly protesting such investments; defence companies of varying scope saying they have been unfairly "debanked"; and politicians clamouring for defence lending to be classified as "ethical" or "ESG" in the national interest.   Lending to whom? As BAE Systems' Roger Carr has said, it's become essential to distinguish between "highly-regulated, ethically-led and government-backed defence contractors" and "freewheeling arms dealers". But how that's done is still being figured out.   Guns out. In March, more than 100 Labour MPs and peers signed a letter urging banks and financial institutions to treat weapons manufacturers as "ethical" investments. That might be helpful from the point of view of national security and deterring Russia. But the Financial Conduct Authority said it wouldn't be necessary: "There is nothing in our rules, including those related to sustainability, that prevents investment or finance for defence companies."   Missing the point. The MPs weren't asking the financial sector to allow investments in defence. They were asking it to encourage them. But even then they were focused on the wrong solution, James Alexander from the UK Sustainable Investment and Finance Association says. "A massive problem for defence companies is the amount of time it takes to get MOD procurement. If you're an SME, you sometimes have to try and keep your company going for six years before getting a contract signed. ESG is not the problem here."   Fighting to get a loan. There has, nonetheless, been a steady stream of claims of "debanking" – a term that has gained traction since Nigel Farage settled a high-profile dispute with Coutts. One source claimed to know of a defence tech firm from outside the UK that had raised £12 million, but had to take out an account with Revolut. A survey from ADS, a trade body representing 1,500 small defence firms, found that nearly three-quarters struggled to access basic banking services. It claims that reputational concerns have been a "key driving factor" behind the trend. It may have a point. In the past year   activists have targeted multiple branches of Barclays to protest its work for companies that produce equipment used by the IDF; and UK Finance has written to the government warning of the risk of harm to innocent branch staff or members of the public.   In a response earlier this year, Barclays said questions about why it "invests" in nine defence companies supplying Israel "mistakes what we do". The bank trades in shares of listed companies in response to client instruction and, while it provides financial services, Barclays says it is not making investments for itself and is not a "shareholder" or "investor".   The bank also updated its policy in 2023 to say it won't finance "companies known to trade in, or manufacture cluster munitions and their components, chemical and biological weapons, and antipersonnel land-mines".   Pushing the button. The research, collected by the anti-nuclear campaign group Don't Bank on the Bomb, found that Barclays had the largest increase (59 per cent) in loans and underwriting provided to defence companies since 2022, while HSBC's financing for defence companies decreased.   The data comes from annual reports, financial statements and company registries, and does not include all defence companies, just those with significant contracts related to nuclear weapon maintenance and production, as per DBTB's focus. These include most big names in the industry including Lockheed Martin, Rolls Royce, BAE Systems and Babcock, which, after rising 13 per cent this week, is the best performing stock on the FTSE this year.   What's more… With Nato leaders' commitment to invest 5 per cent GDP on defence by 2035, the industry has well and truly buried its "sin stock" status. Keeping it that way will require more clarity. The Nibs Capital Economy, business and finance Staley trial ends Former Barclays CEO Jes Staley has failed to overturn a decision by the UK's financial regulator banning him from top finance jobs because of his links to convicted sex offender Jeffrey Epstein. London's Upper Tribunal dismissed Staley's argument that "he had never attempted to conceal" his relationship with Epstein and agreed with the FCA's decision that he had "recklessly" misled the regulator. The judge did, however, reduce the £1.8 million fine imposed on Staley to £1.1 million to reflect the fact that Barclays had not allowed him to receive deferred shares. The judgment also found that Staley had "shown no remorse for his conduct" for failing to accurately disclose his relationship with Epstein who died in prison in 2019 awaiting trial on sex trafficking charges. Staley told the tribunal he had no idea about the financier's "monstrous activities". Technology AI, science and new things Job watch Bank of England governor Andrew Bailey said on Thursday he sees signs of a "softer labour market" after the chancellor Rachel Reeves raised National Insurance contributions for employers in April. Further evidence for a slowdown is visible in the fortunes of recruitment firms. According to CityAM as many as 120 UK recruitment businesses went bust in the six months to April – the fastest rate since the financial crisis – and last week the London-listed recruiter Hays warned that a slump in hirings will halve its profits this year due to "low levels of client and candidate confidence as a result of macroeconomic uncertainty". The job search site, Indeed, recently found the number of vacancies advertised for recent graduates was 33 per cent lower than a year ago, and had fallen 12 per cent as a share of all job postings. Our planet Climate and geopolitics Cut cables The government has thrown out plans to back a £25 billion renewable energy project that hoped to import solar and wind energy from Morocco to the UK via a 4,000km cable. Xlinks, a private company, had promised to meet nearly a tenth of the UK's electricity demand at a price roughly half of that generated by nuclear power stations. Sir Dave Lewis, Xlinks' chair, said the company was "hugely surprised and bitterly disappointed" by the government's decision not to proceed with formal negotiations about a 25-year price guarantee. One Whitehall insider told Sky that the decision was partly motivated by a desire to focus on "homegrown" energy supplies. It's not clear whether the threat of undersea cable sabotage was a factor. Culture Society, identity and belonging Hotdesks A shortage of desks for HSBC employees returning to work is causing a problem for CEO Georges Elhedery's drive to cut costs by $1.5 billion a year. The bank is currently midway through a move from Canary Wharf to St Paul's in the City, but now finds itself in the tricky position of having to limit the extent of its planned downsize in order to support a plan for employees to return to the office three days a week. According to Bloomberg there's a potential shortfall of 7,700 desks. The bank also faces desk shortages in other cities including Hyderabad and Guangzhou, where the bank has 14,500 people employed in tech and support roles. All told, HSBC's resizing could cost around $200 million a year. Thanks for reading. Please tell your friends to sign up and tell us what you think. Barney Macintyre barney@tortoisemedia.com Follow Follow The Observer on social media on your preferred platform:   The Observer     The Observer Food Monthly The Observer Magazine The Observer New Review   Listen Listen for free in the Tortoise app or wherever you get your podcasts: Want to change how you receive these emails? Update email preferences Copyright © 2025 Tortoise Media. All rights reserved. Did this email get caught in your spam filter? Add editor@newsroom.tortoisemedia.com to your address book to never miss an email again. No longer want to receive this newsletter? Unsubscribe here.