When Keir Starmer confirmed he would step down yesterday (22 June 2026), FTSE 100 banks enjoyed a quick relief rally. NatWest (LSE: NWG), Lloyds, and Barclays jumped between 3.6% and 4.7% — comfortably ahead of the Footsie’s roughly 0.6% gain.
It seems the initial reaction was that the leadership transition would be ‘orderly, not Truss‑like’. Crucially, it didn’t trigger a bond‑market panic. Gilts held steady, the pound only slightly weakened, and markets briefly treated UK banks with relief rather than fear.
Fast-forward 24 hours and that mini-rally has hit a wall, with some banks slipping up to 1%. That suggests the story is already shifting from politics back to fundamentals.
So what does that mean for British investors watching domestic banks?
What do the fundamentals tell us?
NatWest and Barclays have eased by around half a percent today, a tiny move compared with yesterday’s jump. Still, it’s enough to remind us that sentiment can turn quickly when the headlines change.
In my view, the market has simply digested the resignation and gone back to its usual worries: interest rates, loan growth, and long-term income stability.
For now, Starmer’s exit looks like a sentiment catalyst, not a fundamental game‑changer. The numbers underneath haven’t suddenly changed just because No.10 is set for a new occupant.
However, the Labour leadership contest could still produce very different fiscal or regulatory plans. For example, we might see tougher capital rules or an aggressive windfall tax on bank profits that could alter the earnings outlook and valuations in a much more material way.
That’s the real political risk investors need to watch, not just the day‑to‑day share price moves.
Why I’m still optimistic
The recent volatility may feel unsettling but when you zoom out, the broader picture for FTSE 100 banks still looks encouraging. Over the past month, NatWest is up about 9% and Barclays around 11.8%, reflecting solid earnings momentum rather than just a one‑day political pop.
In particular, I think NatWest is looking more and more like one of the strongest bank stocks to consider for UK investors chasing passive income.
Allow me to explain…
For 2025, the group reported operating profit before tax up 24.4% to £7.71bn, and lifted its dividend 51% to 32.5p per share. That equates to a forward yield close to 5%.
Profit attributable to ordinary shareholders rose to £5.48bn, while net interest income climbed to £12.83bn as higher rates fed through to margins.
Based on the latest valuation data, that translates into a net margin of about 36.5% and a return on equity (ROE) near 14.2%. That’s a healthy level for a UK‑focused retail and commercial bank.
But a sharper‑than‑expected economic slowdown could still derail the story — if interest rates fall too rapidly, net interest margins would tighten and put dividends at risk. Plus, if the government shakeup leads to stricter bank regulation or tax policy, it could dent returns.
So what’s the verdict?
Starmer’s resignation shook markets for a day, but the real story for long‑term investors in FTSE 100 banks is still written in earnings, capital strength, and dividend policy.
Yes, politics matters to the extent it shapes fiscal discipline and regulation. But the case for domestic banks like NatWest and Barclays ultimately rests on whether their fundementals continue to support shareholders returns.
In my opinion, that narrative hasn’t changed.
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Mark Hartley owns shares in Lloyds.
