Britain’s top banks are set for one of their worst first-quarter earnings seasons since the financial crisis.
Despite shoring up their capital bases and paying out strong dividends, the five biggest banks – HSBC, Barclays, Standard Chartered, Lloyds Banking Group and Royal Bank of Scotland – have collectively seen their shares fall about 11 per cent this year against a 1.5 per cent rise in the FTSE 100.
The costs of laying off staff, compensating customers for mis-sold loan payment protection insurance and stockpiling cash to settle outstanding lawsuits and regulatory investigations are all expected to compound the hit to quarterly profits from low interest rates.
Most analysts expect earnings to fall at the big five banks, with Barclays, HSBC and Standard Chartered thought most likely to suffer the biggest hits.
The turmoil in global equities and commodities markets this year made it harder for investment banks to make money in traditional business lines. Barclays warned investors that its first-quarter investment banking earnings were likely to fall.
Standard Chartered will be the first UK lender to report results, today, two months after announcing its first annual loss in 26 years after slashing jobs and selling unwanted businesses in a bid to cut costs.
Such restructuring exercises by other top UK banks like HSBC and Barclays have helped to control costs but left analysts uncertain as to where growth will come from given the global economic outlook and regulatory problems.
Lloyds is expected to see its first-quarter NIM contract to 2.6 per cent from 2.7 per cent in the same period a year earlier, according to the average of analysts’ forecasts.
RBS will also report NIM of 2.6 per cent according to analysts’ estimates, up slightly from the same period in 2015.
By contrast, the measure was on average 3.5 per cent across the British banking sector in 2009, according to an analysis by Cass Business School published last year.
This is the first set of results where the government’s eight per cent surcharge on banks’ profits will apply after rules changed at the start of the year.
British bank stocks are also being depressed by political uncertainty, with investors steering clear ahead of the June 23 vote on Britain’s membership of the EU.
While UK banks are keeping relatively quiet on the EU referendum debate in their annual reports, uncertainty over the outcome is weighing heavily on them,” said Tim Howarth, banking partner at KPMG.