Major UK banks lookahead: 24-30 April 2024
Matt Britzman, equity analyst, Hargreaves Lansdown: “The UK banking sector is crying out for more love from investors – despite a good start to 2024. Performance peaked last year, so expect to see first-quarter results pointing to lower profit and margins. Key areas to watch for will be loan defaults and arrears, the shift to higher rate saving accounts and green shoots in the capital markets.
Lloyds – 24 April
Lloyds is the first of the major UK banks to report first-quarter earnings next week. Analysts expect weaker results than this time last year, with net interest margins expected to fall from 3.22% to 2.93%. While the drop is expected and owes a great deal to being compared to the particularly strong environment this time last year, when rates were being hiked, anything lower than 2.90% would likely be punished.
There’s also the ongoing issue of an FCA investigation into motor financing to contend with. As one of the more exposed banks, Lloyds has already set aside £450mn in preparation for charges. It’ll be interesting to see whether management has any further commentary here.
Loan defaults are the other key thing to watch, with analysts pencilling in £280mn of impairments. There’s scope for a better result here, and it wouldn’t be a surprise to hear that borrowers remain resilient. Performance clearly peaked last year but Lloyds looks well placed to continue delivering solid performance, the overhang from the FCA investigation being the biggest question mark right now.
Barclays – 25 April
Barclays has more strings to its bow than some of the more traditional UK lenders. The mix of UK mortgage book, credit card operations in the US, and globetrotting investment bank, offers attractive diversification. Fourth-quarter performance was mixed across divisions, with growth from higher rates in the UK and rising US card balances more than offset by lower investment banking activity, consumers shopping for better deposit rates and ongoing mortgage headwinds.
Investors will be hoping Barclays follows suit from its US peers, who have, by and large, reported improved performance from their Investment Banking divisions. Given the economic uncertainty, it’s been a tough slog of late, with investment banking fees under pressure. Markets have been hearing of green shoots for a while, without seeing much in the way of results. It’s an area of focus for Barclays, so progress here will be welcome. Consensus points to pre-tax profit of £1.3bn from the division over the first quarter.
The card business is also worth monitoring. In the US, default levels have been trending slightly higher than in the UK. Coming off a low base, the trend isn’t too surprising, but it’s important that things don’t start to spiral higher.
NatWest – 26 April
NatWest continues to trade at a discount to its closest peer, Lloyds. That valuation gap opened up toward the end of last year, due to the Nigel Farage saga and subsequent management reshuffle. With a stabilised management team and an improving economic backdrop, it’s not too hard to make a case that there’s scope for shares to have a good run.
NatWest was one of the first to see a big shift from consumers into longer-term savings accounts, which was a surprise toward the end of last year. Trends here seem to have stabilised, but it’s certainly something to keep an eye on as those longer-term accounts are less profitable for banks.
Investors were a little unhappy to see a lack of specific guidance on margins and an income forecast that was lower than expected in February. Some of the assumptions used looked overly cautious and it’s not too hard to make a case that the £13-£13.5bn income guide has scope to be pushed higher over the year.
HSBC – 30 April
Recent HSBC results have been filled with one-off charges that need to be stripped out to get an idea of underlying performance. HSBC’s focus in Asia sets it apart from many of its UK peers, but its Chinese operations have caught headlines after the group wrote down the value of its stake in Chinese bank, BoCom, by $3bn. Investors will be hoping there are no more surprise write-downs on the cards.
With income linked to US and Asian rates, that’s helped HSBC emerge as one of the stronger performers recently. The potential for rates in the US to stay higher for longer could act as a boost to current expectations. There should also be a big cash inflow from the sale of its Canadian business which was completed in the quarter. Aside from the proposed special dividend of $0.21 per share, the capital freed up is set to help grow the core business – any details here would be welcome.”
The UK government has confirmed its intentions to sell its stake in NatWest to the general public “at the earliest opportunity subject to supportive market conditions and value for money.” Chancellor Jeremy Hunt said the Treasury wants to “create opportunities for a new generation of retail investors to engage with public markets”. HL expects to be an intermediary in this share sale.
