The Week Ahead: Banking sector in focus as Barclays and Lloyds report half-year results

Barclays chief executive Jes Staley.

Barclays chief executive Jes Staley. - Credit: PA

Banking giants will dominate reporting this week, with the City looking out for any Brexit concerns when Barclays and Lloyds deliver their half-year results.

Barclays posts its half-year figures on Friday after a better-than-expected results season from its US counterparts, but Brexit will remain in focus.

The group is expected to have to make big changes to adapt post Brexit, having sold off most of its European operations since the financial crisis.

Boss Jes Staley will be looked to for further details on its plans following the vote when he unveils interim results.

The figures come with deal-making and trading revenues having come under pressure in recent months, although US investment banks have put in a robust performance thanks to a second quarter bounce back.

JP Morgan, Citi and Goldman Sachs are all among those to have surprised Wall Street with their results for the three months to the end of June.

Goldman Sachs posted a 74% surge in earnings to 1.82bn US dollars (£1.4bn) for the second quarter, thanks largely to cost cutting and lower legal costs, but also soaring fixed income trading revenue.

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Its half-year results showed revenues from trading fixed income, commodities and currencies rose 20% to 1.93bn US dollars (£1.5bn) in the second quarter.

This came after JP Morgan reported a 13% rise in trading revenue and 35% jump in fixed income trading revenues.

Barclays saw profits tumble by a quarter in the first three months of the year as it was hit by tough trading in its investment banking arm.

The group posted first quarter pre-tax profits of £793m, down from £1.1bn a year earlier, as underlying profits in its corporate and investment banking business plunged 31%.

Ian Gordon, banking analyst at Investec, said Barclays is likely to benefit from the fixed income boost, but also the stronger dollar versus the pound, as it makes a hefty amount of investment banking revenues in dollars.

But he said revenues overall are likely to remain under pressure, with the retail bank’s woes only set to worsen if interest rates are cut, as many expect.

“The second quarter is likely to be OK for Barclays, but the real issues are the negative impact of any interest rate cut and possible slowdown in loan growth,” he said.

Lloyds Banking Group is expected to bolster profits when its updates the market with its half-year results on Thursday.

The state-backed bank looks set to boost statutory pre-tax profits to £2.35bn for the first half of the year, up from £1.19bn over the period in 2015, according to consensus figures.

It comes after the lender saw its profits take a hit in the period last year when it added £1.4bn to its bill for compensating customers mis-sold payment protection insurance (PPI).

The consensus figures, which were compiled before the Brexit vote and based on the views of 15 analysts, have pencilled in the bank’s net interest income to edge up to £5.81bn over the period, compared to £5.71bn the year before.

However, Deutsche Bank analyst David Lock said the EU referendum outcome may have come too late to impact the results.

He added: “Given that Brexit was late into the quarter, we expect limited impact on results from the referendum decision.

“Instead we think the focus will rest not on second quarter performance, but on management commentary for outlook of margin (sensitivity to lower rates), lending growth (especially consumer finance), dividends and any cost plans.”

The bank said in April that it delivered a “robust” performance in the first three months of the year despite posting falling profits.

The lending giant saw bottom-line profits nearly halve, down 46% to £654m in the first quarter, as it was hit by charges from buying back expensive bonds from investors.

Analysts warned in June that Lloyds Banking Group and Royal Bank of Scotland could remain part-owned by the taxpayer for years to come after the stock market chaos caused by Brexit.

City experts said the Government would be forced to shelve offer of shares in Lloyds Banking Group after banking shares crashed into the red after the vote.