UK banks breathe shallow sigh of relief

A hard Brexit is pretty much off the cards, for now, giving UK banks some breathing space.

However European and U.S. rate cuts are hurting net interest income at some British lenders as much as those further afield, whilst the spectre of a Bank of England cut continues to hover. Meanwhile, growth remains elusive and few banks based in the UK are exposed to the volatile trading revenues that just for a change fuelled revenue growth stateside in the past quarter. Here are some points to watch when British banks report earnings in the days and weeks ahead.

Royal Bank of Scotland Group Plc. Q3 2019 Trading Statement, Thursday, 24th October, 07:00 BST

Efficiency has been the main theme so far in the second half, as swap rates and the yield curve, not to mention Brexit, are expected to apply pressure on revenues. At least the PPI matter should finally have been put to sleep, post-deadline. The new CEO may not have many levers to pull in their first quarter to rekindle the shareholder pay-out story much, so shares are likelier to hinge on RBS’s adroitness in avoiding the most obvious pitfalls. EPS consensus forecast: 8p. Revenue consensus forecast: £3.14bn. Read City Index Market Analyst Fiona Cincotta’s in-depth RBS earnings preview here.

Barclays Plc. Q3 2019 Earnings, Friday, 25th October, 07:00 BST

Delivery on CEO Jes Staley’s 9% return on tangible equity goal is in the balance, as cost control remains the key level. Rate cuts and Brexit are typical revenue pressures though a surprisingly robust quarter in Wall Street rivals’ trading businesses poses upside risks to revenue expectations. Adjusted EPS consensus forecast: 6p, -13%. Revenue consensus forecast: £5.33bn, +4%

HSBC Holdings Plc. Q3 2019 Trading Statement, Monday, 28th October, 04:00 BST

At a minimum, positive ‘jaws’ must be maintained at upcoming earnings. The measure of revenue growth relative to cost rises was positive in Q2 though weaker than in the first quarter. HSBC is looking at further headcount cuts at the investment bank, plus reduced 2019 expenditure versus an initial $4bn 2019 target. Shares in Europe’s largest bank by assets underperform those of key rivals so far this year after a shaky first couple of quarters which also saw the unexpected (and poorly explained) departure of previous CEO John Flint. Investors will try to get a feel for Flint’s replacement, Noel Quinn, who will host his first post-results calls. They will also assess how well Europe’s largest bank by assets is managing priorities like accelerating U.S. profit growth. Still, none of these moves are expected to reinvigorate shareholder pay-outs and further disappointment is quite likely on that front. Adjusted EPS consensus forecast: $0.215, +10%. Revenue consensus forecast: $13.95bn, +5%

Lloyds Banking Group Plc. Q3 2019 Trading Statement, Thursday, 31st October, 07:00 BST

The strongest of the biggest UK-focused bank (RBS is the other) have a lot riding on Brexit. In some ways, having risen 16% so far this year, Lloyds shares have more to lose in the event that Britain’s departure from the EU goes awry again. With Parliament agreeing to Boris Johnson’s deal this week, if not his timetable, no-deal is increasingly off the cards. Lloyds’ market-leading positions and strength can thereby come through more clearly. Accelerated cost-cutting and strong capital-management plans should hold return on tangible equity in the low-double digits in the absence of loan growth. (RoTE is a key measure of profits that can be attributed to shareholders). That’s still better than many rivals. Meanwhile, capital build of 170-200 bps will support a 50% dividend-pay-out ratio and buybacks in 2020, a key watch point. A low-single-digit fee growth in insurance and wealth management would put icing on the cake, though expectations are low. Adjusted EPS consensus forecast: £0.017, -5%. Revenue consensus forecast: £4.52bn, -3.5%.

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