The Week Ahead: Results due from banking giants HSBC, Lloyds and RBS
06:00 22 February 2016
The results season for the major high street banks gets into full swing this week, with HSBC, Lloyds Banking Group and Royal Bank of Scotland delivering their full-year reports.
The updates come against a backdrop of sustained market volatility, which has punished banking stocks as investors fear some institutions may not hold enough capital to withstand a slowdown in global growth.
HSBC kicks off with its results today and annual profits are expected to bounce back from a 17% slump in 2014. Europe’s largest bank looks set to bolster annual pre-tax profits to 21.8billion US dollars (£15.2bn), up from 18.6bn dollars (£13bn) in 2014.
However, analysts at UBS expect profits to come in slightly lower at 21.4bn dollars (£14.9bn). They said the bank’s ambition to hit future revenue targets would be boosted if the US Federal Reserve presses ahead with further interest rate rises.
HSBC surprised analysts in the third quarter when it posted pre-tax profits of 6.1bn dollars (£3.95bn) for the three months to September, beating forecasts of 5.2bn dollars (£3.4bn).
The full-year results will come hot on the heels of a string of developments at the bank, including hints by chief executive Stuart Gulliver that he may step down in two years’ time. Mr Gulliver said he wanted to see through the bank’s strategic plan announced in June, which is slated for completion at the end of next year.
His comments came as HSBC revealed it would keep its headquarters in the UK following a lengthy high-profile review. The decision to remain in London follows a series of concessions to the City by Chancellor George Osborne in recent months.
However, in a fresh twist, HSBC said it would move about 1,000 jobs from London to Paris in the event of Britain leaving the EU.
Lloyds Banking Group is expected to reveal hefty mis-selling charges when it posts its annual results on Thursday. Analysts predict a £2bn charge for payment protection insurance (PPI) mis-selling in the fourth quarter, followed by a £1.1bn hit for 2016-17.
Statutory profits before tax are expected to hit £1.24bn, according to Jefferies, with net interest income coming in at £11.5bn. Lloyds last year saw a fourfold rise in annual profits to £1.8bn.
The expected charges for Lloyds come after Royal Bank of Scotland put in place another £500million for mis-selling claims in January, while Santander UK saw profits fall 4% last year after a £450m PPI charge.
The Financial Conduct Authority has proposed a two-year deadline on PPI claims, which is expected to trigger a rush of PPI claims by banking customers in the coming months.
Meanwhile, the Chancellor postponed the sale of the Government’s final stake in Lloyds last month, blaming turbulence in the global markets. The Chancellor said he would wait until volatility in the markets had “calmed down” before pressing ahead with sale of the Government’s near 10% stake in the high street lender.
David Cameron pledged during the General Election to sell the final part of the Government’s stake, which was expected to raise £2bn. However, the Lloyds share price has fallen from 78p to 63p since then, meaning any efforts to press ahead with a sale would have seen shares sold at a substantial loss.
Royal Bank of Scotland will post its eighth year of annual losses when it announces its full-year results on Friday.
The lender revealed last month that it would remain in the red after taking a £2.5bn hit including more mammoth charges for mis-selling scandals. Bosses at the bank said the latest “clean-up” charges would lead it to a loss for 2015.
The lender announced a deficit of £3.5bn last year, although this was down on the £9bn reported a year earlier.
RBS, which is 73% owned by the Government, is setting aside another £500m for PPI mis-selling claims, as well as £1.5bn to cover US legal action on toxic mortgage-backed bonds sold before the financial crisis.
It also revealed in January a £498m write-down on the value of its troubled private bank, Coutts, while it said it was pumping another £4.2bn into its pension scheme.
The additional provision for US mortgage legal action took its total to £3.8bn, but further hefty charges are expected as the bank nears a settlement with authorities in America. RBS stressed in January that the latest provision only covers civil claims and does not relate to ongoing investigations by the Department of Justice or US attorneys.
It is the last of the major banks to settle with US authorities, with more than a dozen lenders already having agreed settlements.