Banks brace for change
Four of Britain’s big banks reported stronger profits, higher dividends and share buybacks. Markets were unimpressed. Matthew Partridge reports
“Politicians have hurled brickbats at bank bosses for failing to pass on the benefits of rising interest rates to savers,” says Lex in the Financial Times. “Results from NatWest suggest the banking bonanza may have been overhyped.” Last week, CEO Alison Rose unveiled its highest profits since it was bailed out in the financial crisis in 2008. Operating profits jumped to £5.1bn from £3.8bn in 2021. Its net interest margin (NIM) – the gap between rates paid to savers and what it gets from loans – was 3.2%, up from 2.3%. Yet the shares dipped 7% after it said the NIM may have peaked. Savings rates are having to rise faster, while competition in mortgages is heating up.
Still, it is possible that this year’s profits might still meet expectations. If the recession is mild, lower loan-loss provisions should offset lower NIMs. The group plans £800m in share buybacks and a big hike in the dividend to 10p per share, putting it on a yield of 5.6%. “A yield higher than most one-year term rates on offer should be enough to keep thriftier shareholders engaged.”
Muted ambitions
Results for the more globally diversified HSBC showed that CEO Noel Quinn has done what he promised when he took over in 2019, says Liam Proud on Breakingviews. He’s shifted assets from underperforming divisions and is exiting France, the United States and Canada. Return on tangible equity (ROTE) is up to 11.6%, from 9.9%. The firm hiked its dividend and will consider both share buybacks and a special dividend.
“Still, there’s a muted tone to Quinn’s current aspirations.” Projected net interest income of $36bn next year is less than implied by the last quarter, and a goal of getting ROTE above 12% is lower than analysts’ forecasts of 13% in 2023 and almost 14% in 2024. Maybe Quinn wants to under-promise and over-deliver – or maybe he expects the windfall from rising rates to peter out. “If bank bosses are bracing for that to change, investors should probably do the same.”
The outlook at Barclays was more mixed, says Alistair Osborne in The Times. CEO CS Venkatakrishnan said the bank performed strongly, pointing to a 14% rise in income to £25bn and a 10.4% return on equity. Yet the shares dived 8% to roughly 170p. Guidance for a 3.2% NIM missed expectations, a £500m share buyback was underwhelming and the investment bank had a “rough” fourth quarter, with fee income halving. “Barclays can point to areas of progress… Yet results like these won’t close the yawning gap to its 295p-a-share book value.”
Lastly, Lloyds reported a 14% rise in net income to £18bn, a higher dividend and £2bn in buybacks – none of which impressed the market. CEO Charlie Nunn is struggling to lift a “stubbornly inactive” share price, says Simon English in the Evening Standard. His big plan for growth is to sell wealth management to the mass affluent – those who earn or invest more than £75,000. “There are loads of those people, but it’s not obvious why they would choose Lloyds.”