UK Banking Sector Performance Diverges as Earnings Season Concludes

The financial performances of UK banks have varied following recent earnings as exposure to global markets has influenced industry members differently.

Standout Performers in the FTSE

UK banks have puzzled investors in recent years. While profits increased, stocks continued to decline for extended periods. Even attractive dividend yields have failed to attract long-term, stability-focused capital. As an example, Lloyds offers a 6% dividend yield on its current share price. BOE's persistent tightening of monetary policy appears to have left investors more uncertain than optimistic. Conversely, across the English Channel in Europe, banks are positioned to deliver notable dividend payouts and have seen stock prices increase.

 Barclays is the top-performing UK bank throughout this earnings season, with its stock rising over 10% since the start of the month. Barclays' stock price jumped 7% upon announcing its strategic prioritisation of the UK market.​ Lloyds is not far behind, although it has yet to surpass the double-digit threshold. In contrast, HSBC remains in negative territory for February. A key differentiating factor appears to be domestic market focus, with the leading risers concentrating operations more within the UK than HSBC, which continues to experience fallout from China's property sector downturn and the subsequent slowing of economic growth.

Prospects Are Not That Rosy

UK banks have faced different struggles since the 2008 crisis for various reasons, leaving investors wary about reinvesting in them/ It follows a long period of major efforts needed to bail them out. Some scars from that period remain. For example, the UK government still holds a substantial stake in NatWest. So, if there is a glimpse of hope, it may be that the time for investor confidence to return and boost bank valuations may be closer now. Notably, despite economic challenges and higher costs, UK banks' profitability, asset quality and capital ratios are expected to remain solid as interest rates stay high.

 Interestingly, investors seem more inquisitive in punishing signs of trouble. Two examples are provisions made by HSBC for a stake in the Bank of Communications and money set aside by Lloyds for a regulatory investigation into car loan practices. A third is the recent issue regarding NatWest's handling of Nigel Farage's account at subsidiary Coutts. It resulted in the CEO's departure, trimming away from what investors seek: stability. And this is a key factor. On the other hand, despite slower earnings growth, Barclays' strong performance suggests that investors care more about banks avoiding problems than posting large profits.​

Lloyds Triangle Breakout Imminent?

Lloyds may have recently concluded a triangle pattern from early February, with scope for further upward momentum. Applying the measured-move technique whereby the length of the triangle formation is projected from the breakout point, Lloyds could rise as high as 65 pence. Near-term bullish sentiment may face resistance around 48 and 52 pence on the path towards 56 pence. However, should the upper trendline prove firm, the stock could reverse to the lower end of the triangle to around 40 pence, provided the support at 44 pence fails to ward off pressure.

Source: SpreadEx / Lloyds

Key Takeaways

The performances of UK banks have varied recently, with exposure to global markets affecting prices. Barclays has been the top performer this earnings season, with its stock rising over 10% since the start of February due to prioritising the UK market. Lloyds is also performing well but is yet to exceed double-digit growth, offering potential opportunity. In contrast, HSBC remains in negative territory for the month, as it is greatly exposed to China. Investor confidence in UK banks may gradually recover as interest rates remain high and banks maintain solid profitability, capital, and asset quality. However, recent issues, such as provisions made by HSBC and Lloyds, continue to make investors wary of potential problems.