Bank earnings preview: What to expect in this week’s quarterly results
While the banking sector has recovered somewhat in the past two months this week the issue of bad loans and customer defaults will be front of mind.
The sector set aside billions in provisions for bad loans at the start of the pandemic, expecting a huge increase in defaults. However with thanks to government support bad loans have been lower than expected.
We’re already starting to see some of the provisions set aside by US banks last year being added back, although UK banks may be more hesitant.
HSBC – 27th April
HSBC is likely to outperform consensus estimates earnings, continuing the trend of the last two quarters. However revenues are likely to miss expectations – revenues for the full year 2020 were 10 per cent lower than the previous year driven by lower core banking revenues.
It did however resume its dividend for the first time since October 2019 after regulators put a temporary moratorium on payouts during the pandemic.
HSBC is heavily dependent on its core banking business and it is likely weakness in this division will continue to hurt its top line in the first quarter, even as its sales and growth trading grow.
Consumer spending will start returning to normal levels in the coming months, while trading figures also stabilise, but the issue of low interest rates are unlikely to subside yet.
Lloyds – 28th April
Antonio Horta-Osorio bid farewell on a high at the end of the fourth quarter. Lloyds’ figures were encouraging despite concerns lockdowns could affect its non-performing loan provisions.
Provisions for the fourth quarter increased by £128m, taking the total set aside for the year to £4.2bn.
“With the dividend also getting reinstated and the outlook for this year becoming more positive, we could start to see some of the provisions that were set aside last year being added back if the economy proves to be more resilient than initially projected,” MIchael Hewson, chief markets analyst at CMC Markets said.
Nicholas Hyett, equity analyst at Hargreaves Lansdown points to the substantial cash pile Lloyds has built in the past year after it was forced to suspend dividends.
“That gives it a lot of options, including dividends, acquisitions and buybacks. THe bank has so far said it intends to pay a “progressive dividend” but from what level is unclear,” he added.
Natwest – 29th April
It has been quite the year for Natwest boss Alison Rose who has overseen a makeover of the bank amid the pandemic. Last year Natwest’s share price hit new lows but has since rebounded to a post pandemic high.
It has been a year of cost cutting – £277m in total – while announcing its exit from the Republic of Ireland, while the Northern Irish division of Ulster Bank will remain in the group. Hewson notes that while there has been interest in the loan book but is struggling to give away the rest of the business.
The bank set aside £3.24bn in impairments for 2020, which was below expectations.
Standard Chartered – 29th April
Standard Chartered’s pre-tax profit dropped 57 per cent last year to $.6bn, largely caused by higher credit impairments. It booked impairments of $2.3bn, more than double the previous year.
Jefferies analysts predict a two per cent growth in retail-related revenue, a 29 per cent rise quarter-on-quarter in financial markets and a 33 per cent jump in wealth management revenue.
Analysts are also speculating that StanChart could snap up Citi’s retail banking operations in 13 Asian and EMEA markets. Earlier this month Citi said it planned to exit operations in China, Malaysia and India among others, which they estimate around $50bn of loans associated with them.
“We calculate STAN will have around $2.4bn of excess capital at end-2021 and any use of this towards the addition of consumer books in key ASEAN markets should be taken positively,” they said.
Barclays – 30th April
Barclays has had a stronger year than most largely due to the performance of its investment bank. If the US banks are anything to go by this trend will continue into the first quarter for the bank.
Barclays reinstated its dividend with a 1 pence payout as well as a £700m share buyback in its last set of results, despite setting aside over £4.8bn in non-performing loans.
Its pre-tax profits fell from £4.4bn to £3.1bn, while investment bank profits rose to £4bn.
“With US banks rotating capital out of their loan loss provisions, we could well see banks in the UK do something similar, while barring a setback, in the form of a new variant or another lockdown the outlook looks much brighter now than it did at the beginning of the year,” Hewson said.