09:06 Friday 26 October 2018
This week has seen Barclays, Lloyds and RBS report on their Q3 earnings and Monday will see HSBC announce their interim results. We thought that this would be a good time to review how these UK banks have performed this year and discuss our outlook for the foreseeable future.
In general, 2018 has not been a good one for the sector and the chart below demonstrates the overall downwards correlation between the banks. Despite the wide spread between the banks between March and May, June started a slide for all four firms and as with many companies, October has been brutal so far.
Wednesday’s third quarter report from Barclays was a timely boost for the company. Operating net income came in at £4.88bn beating estimates of £4.69bn, revenues from equities reached £417m which beat the analyst expectation of £461m, however revenue from M&A advisory dropped to £519m from £607m the year before. In addition, strong fixed income trading revenue in Q3 saw them ranked first in a table of global banks including Morgan Stanley, Goldman Sachs and Deutsche Bank. Following the report, the market responded positively and stock had risen this week but slumped on Friday morning to 168.68 at the time of publication.
When Lloyds reported on Thursday, they were bullish as they played down fears of Brexit and looked to reassure customers. Confidence on their outlook was bolstered by the report of a pre-tax profit of £1.8bn which beat analyst estimates. Lloyds cited a growing net interest margin and a drop in costs as the boost to their profitability. It has also expanded lending to small businesses and high margin products including car finance which have added to the balance sheet. Outgoing CFO George Culmer also announced that the company may return some of the excess capital to shareholders in the form of a special dividend and a decision on such a move would be made in the new year. The gains following the results helped wipe out the losses from the week before falling again on Friday morning.
This morning earnings report from the Royal Bank of Scotland appears to have wiped the positive sentiment of the face of the UK banking sector. RBS warned shareholders of an ‘uncertain economic outlook' and announced they had set aside £100m to cover. This is in addition to a further £200m to cover PPI claims, taking the total of £5.3bn to deal with the issue. Despite the negatives in the report, RBS did post a 14% rise in 3rd quarter profits but this was not enough to stop the stock sliding on opening, dropping as much as 5%.
HSBC will be reporting on Monday and we will touch on this after the results have been announced. Ahead of the announcement, one area of concern for investors holding positions on HSBC is the annual dividend outlook. Between 2010 and 2016, HSBC consistently built on their dividend payouts before cutting them in ’17 and although picking up again in ’18, forecasted payouts do not match the gains previously seen by shareholders.
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