What you need to know about the banks’ lat­est fi­nan­cial re­sults

We pro­vide a com­pre­hen­sive re­view of the four main UK banks’ quar­terly fig­ures

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The third quar­ter re­port­ing sea­son for the banks had a mixed re­sponse from the mar­ket. Lloyds’ (LLOY) fig­ures were quite good but in­vestors worried about fu­ture cap­i­tal re­quire­ments, given wor­ry­ing com­ments from the bank about pres­sure from the reg­u­la­tor.

A solid show­ing from Royal Bank of Scot­land

(RBS) was also over­shad­owed by on­go­ing reg­u­la­tory con­cerns.

Both Bar­clays (BARC) and HSBC (HSBA) fell short of ex­pec­ta­tions to vary­ing de­grees.

LLOYDS – 25 OC­TO­BER

Earn­ings per share of 1.9p was 46% ahead of con­sen­sus es­ti­mates, re­flect­ing a re­duc­tion in charges linked to past con­duct – such as PPI com­pen­sa­tion.

The net in­ter­est mar­gin (NIM), the dif­fer­ence be­tween in­come from lend­ing and the cost of fund­ing and a key in­di­ca­tor of prof­itabil­ity, hit 2.9% against a fore­cast for 2.87%.

The com­mon eq­uity tier one ra­tio, a mea­sure of the abil­ity of the bal­ance sheet to with­stand eco­nomic shocks, was up 0.6% to 14.1%.

BAR­CLAYS – 26 OC­TO­BER

Un­sur­pris­ingly Bar­clays saw the most neg­a­tive re­ac­tion to its third quar­ter numbers as its pre-tax profit came in well short of ex­pec­ta­tions for £1.4bn at just £1.1bn.

The main cul­prit be­hind the un­der­whelm­ing per­for­mance was its in­vest­ment bank­ing divi­sion which suf­fered from low vol­umes and lim­ited volatil­ity across fixed in­come, cur­rency and com­mod­ity mar­kets.

Sim­i­lar prob­lems have been faced by in­vest­ment bank­ing peers. For­mer JP Mor­gan boss Jes Sta­ley was hired as CEO to fix this part of the busi­ness. Fail­ure to do so could ul­ti­mately cost him his job.

A tar­geted group re­turn on tan­gi­ble eq­uity (RoTE) of 9% in 2019 still looks some way off, with a read­ing of 7.1% for this three-month pe­riod.

ROYAL BANK OF SCOT­LAND – 27 OC­TO­BER

For a third con­sec­u­tive quar­ter the bank was prof­itable with ad­justed op­er­at­ing profit of £1.25bn beat­ing con­sen­sus fore­casts by an im­pres­sive 18%.

A rel­a­tively muted share price re­ac­tion should be con­sid­ered in the con­text of an al­ready-strong share price per­for­mance this year and the threat from on­go­ing probes by reg­u­la­tors on both sides of the At­lantic.

The US De­part­ment of Jus­tice con­tin­ues to in­ves­ti­gate the mis-sell­ing of mort­gage-backed se­cu­ri­ties by RBS in 2008. The $12bn fine faced by Deutsche Bank over sim­i­lar is­sues is some­what larger than the $6.6bn al­ready set aside by RBS to cover dam­ages.

The Fi­nan­cial Con­duct Au­thor­ity in the UK is also look­ing into com­plaints over an RBS sub­sidiary, the Global Re­struc­tur­ing Group, and its con­duct to­wards small busi­ness clients be­tween 2008 and 2013.

HSBC – 30 OC­TO­BER

Look­ing purely at rev­enue growth, HSBC’s third quar­ter up­date was en­cour­ag­ing with $12.98bn rev­enue be­ing some $300m ahead of fore­casts.

How­ever pre-tax profit fell short of fore­casts at $5.4bn, amount­ing to a 1% fall year-on-year.

The main rea­son be­hind the re­duced prof­itabil­ity was an in­crease in op­er­at­ing costs, linked to busi­ness in­vest­ment and per­for­mance-re­lated com­pen­sa­tion, as well as mod­estly higher im­pair­ments.

Ul­ti­mately this wasn’t a bad set of re­sults but as the most ex­pen­sive UK bank, trad­ing on 1.4-times tan­gi­ble net as­set value be­fore this up­date, the com­pany is rightly held to a higher stan­dard. (TS)

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