UK Banks in Focus

Certain British banks may experience beneficial conditions resulting from policies enacted by the BOE, but worldwide issues could present difficulties for banks operating across multiple international markets.

UK Banks Results

Lloyds reported results on Wednesday that exceeded earnings estimates, with Barclays repeating the trend on Thursday. This raises hopes that other major UK-based banks, such as NatWest and HSBC, may report similar positive results. This would contrast with previous predictions for this reporting season. Analysts had forecast that UK bank profits would narrow due to increasing provisions in anticipation of future uncertainty.

The banks that already reported so far have not revealed what analysts expected. Lloyds recorded fewer provisions, while Barclays maintained its impairment allowance at the prior year’s level and exceeded profit forecasts due to higher net interest income (NII). Its stock price rose 2% at market open after the company announced a net profit of £1.6 billion, above the analyst consensus of £1.2 billion. Revenue of £6.5 billion was slightly higher than the £6.4 billion forecast, affirming the bank's ongoing cost reduction efforts that analysts may not have fully considered. Barclays has also increased its focus on domestic lending compared to investment banking, which has been more volatile recently. The bank reaffirmed its full-year guidance but did not comment on potential impacts from lower interest rates that markets expect from the BOE.

Upcoming Movers

NatWest is scheduled to report its earnings results on Friday. Analysts expect the bank to deliver one of the few UK bank profits this quarter, helped by lower loan loss provisions. Consensus estimates are for profits to rise to £1.63 billion, up from £1.33 billion last year. Net interest income is projected to increase slightly to £2.78 billion from £2.69 billion. NatWest also shares some similarities with Barclays, as both have recently acquired retail banking arms and launched cost control management programmes.

Meanwhile, HSBC will make its announcement next Tuesday before the market opens. Investors will likely focus on the bank's exposure to China and the commercial real estate business in Hong Kong. It appears HSBC aims to follow the example set by Barclays and NatWest, having recently announced wide-ranging restructuring under its new CEO aimed at cost savings. The bank also wants to strengthen its focus on Asia. As such, analysts will watch for updates on the regional outlook and whether the reorganisation affects HSBC's guidance.​

HSBC in Wedge Pattern

Over the years, HSBC's share price has gradually increased, surpassing the typically important 61.80% resistance level of $56-$19 leg for long-term trend changes. It has likely completed a wedge pattern at $45.50 after seeing a correction to $40, possibly concluding a needed pullback to continue towards the round $50 resistance. This could open the door to its 2021 high of $55.60. However, if the wedge pattern is not fully formed and a double top forms, the price may move towards $37 and the key $32 support level.​

Source: SpreadEx / HSBC Holding US

Key Takeaways​

UK banks Lloyds and Barclays reported results this week that exceeded earnings estimates, raising hopes that NatWest and HSBC may follow suit. This contrasts with analyst predictions that bank profits would decline due to higher loan loss provisions, with Lloyds recording fewer provisions and Barclays maintaining impairment levels while surpassing profit forecasts on NII and ongoing cost reductions. Upcoming, investors will watch NatWest's results on Friday and HSBC's announcement next week for updates on their regional outlooks, restructuring progress and potential impacts of lower interest rates.​