Banks to report first quarter results in a busy week for the sector
Three leading high street banks are set to report their first quarter results for 2018 this week.
Lloyds Banking Group is on track to post another healthy rise in profits on Wednesday after a solid first quarter.
Analysts at UBS are pencilling in a 9% rise in underlying pre-tax profits to £2.3 billion for the three months to March 31 and bottom line profits up 40% at £1.8 billion.
But boss Antonio Horta-Osorio will be looked to for his views on the impact of an expected rise in interest rates - something of a double-edged sword for retail banks.
The Bank of England is expected to increase rates from 0.5% to 0.75% in May, potentially with another hike later this year to bring inflation back to target.
While higher interest rates mean higher retail profit margins for lenders like Lloyds, it may also dampen the housing market and demand for mortgages.
The figures will also be eyed closely for any further cash set aside for the payment protection insurance (PPI) saga, in particular following Clydesdale and Yorkshire banking group CYBG’s recent move to put by an extra £350 million following a recent surge in claims ahead of the complaints deadline.
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But with Lloyds having only just added £600 million for the mis-selling scandal for the previous quarter - taking its overall bill to an eye-watering £18.7 billion - it is thought unlikely another hefty hit will be revealed.
The figures also come just a week after its latest jobs cull, with 1,230 roles axed under plans to shut 49 branches nationwide.
It pledged to create 925 roles elsewhere in the business, saying the net reduction was 305, as it focuses on investment in technology and digital banking under its new three-year strategy.
Pre-tax profits at Barclays, meanwhile, are set to come in broadly flat at £1.63 billion when it reports first quarter figures on Thursday.
However, City analysts expect it to record a post tax loss of £500 million after factoring in a two billion US dollar (£1.4 billion) settlement with the US Department of Justice (DOJ) earlier this year.
The settlement related to the sale of mortgage-backed securities in the lead-up to the financial crisis.
Graham Spooner, Investment Research Analyst at The Share Centre, said: “Results from the group have continued to be a bit of a mixed bag.
“Investors will be looking for more news on the group’s restructuring and on the performance of the still important investment banking division.
“They will also be hoping for no more nasty surprises relating to regulatory investigations. As ever the outlook for the year ahead will be important.”
The results come at a tumultuous time for the bank, with regulators slapping a fine on boss Jes Staley after finding he had breached conduct rules by attempting to identify a whistleblower in 2016.
Warning notices issued by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) said Mr Staley’s action’s violated rules that require an individual “to act with due skill, care and diligence”.
However, the bank stressed that regulators are not alleging the Barclays boss acted with a lack of integrity or that he was not fit to continue in his role as chief executive.
The under-fire chief executive is also expected to be grilled over recent moves by an activist investor, which is thought to be pushing for radical change at the lender.
Sherborne, run by Edward Bramson, picked up a 5.16% stake in the lender for £580 million last month and now sits behind Capital Group, Qatar Investment Authority and BlackRock on the shareholder register.
It is understood that Mr Bramson, who has a track record of corporate activism, has met Barclays representatives.
Recent reports suggest the investor is seeking higher returns from the investment bank or even a break-up of the group as Sherborne presses for bigger payouts for shareholders.
Royal Bank of Scotland will be the last to report first quarter figures to the market on Friday after having booked a bottom-line annual profit for the first time in a decade earlier this year.
UBS analysts are pencilling in flat adjusted profit of £1.3 billion for the period., but an impending settlement with the US Department of Justice looks set to once again overshadow the numbers.
The lender, still 72% owned by the taxpayer, is yet to reach what is expected to be a multibillion-dollar settlement with the DOJ over claims that it mis-sold mortgage-backed securities in the run-up to the financial crisis.
The penalty is likely to dent the bank’s full-year performance but, once a settlement is reached, it will allow RBS to kick-start the process of resuming dividends, thereby attracting funds who only invest in such stocks.
The Government said last year that plans to reprivatise RBS were under way, with the aim of selling £15 billion of its shares by 2023.
It wants to restart share sales in RBS by the end of the 2018-19 financial year and sell off £3 billion a year over five years - around two-thirds of its stake.
However, the Government faces a £26.2 billion loss on its stake, with the lender’s shares languishing well below the average 502p share price paid during the 2008 and 2009 bailout, at around 273p at today’s prices.
Mr Spooner said: “Investors will be keeping a close eye on costs, along with any updates on the CEO’s ongoing restructuring plans.
“Analysts have been turning more positive on the group, with the first profit in nine years reported in February, but this has yet to be reflected in the share price this year which is down by around 4%.”