What you need to know about the banks’ latest financial results
We provide a comprehensive review of the four main UK banks’ quarterly figures
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)