The Week Ahead: Figures due from Lloyds, Barclays, RBS, BT and BP
- Credit: PA
The return to health of the UK’s state-aided banks, Lloyds and RBS, will be tested this week, alongside other blue-chip results from BT and BP.
Royal Bank of Scotland’s quarterly figures on Friday will be dominated by attention on the outcome of a Government-commissioned report into whether the bank’s “bad” assets should be hived off.
The study by investment bank Rothschild has advised Chancellor George Osborne on the merits and pitfalls of separating operations such as Ulster Bank and £40billion of non-core loans in order to accelerate the privatisation of the remaining “good” parts.
Any such move could also result in the accelerated sale of its American retail bank Citizens, valued at around £8bn.
According to UBS, the 80% state-owned bank is expected to report flat profits of £1.1bn from core operations in the three months to the end of September, helped by Britain’s recovering economy.
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Despite progress on repairing its balance sheet, Investec analyst Ian Gordon warned RBS is still battling a “dangerous cocktail of legal, political and regulatory obstacles”.
However, fears over a damaging carve-up have largely been offset by optimism over more non-core asset sales, including its agreement to sell more than 300 surplus branches to investors including the Church of England.
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Taxpayer-backed Lloyds Banking Group and rival Barclays will both update the City on their third quarter performance amid a period of upheaval for both businesses.
The trading update for Lloyds on Tuesday will be the first since the Treasury began the process of returning its stake in the bank to the private sector, selling a 6% chunk for £3.2bn to institutional investors last month. Official figures showed profit on the sale provided a half-billion pound boost to the public accounts.
The Lloyds group, which also includes Halifax Bank of Scotland (HBOS), swung out of the red with half-year profits of £2.1bn earlier this year.
It had to be rescued by the Government during the financial crisis after swallowing up troubled HBOS and later took a multi-billion pound hit from the scandal of payment protection insurance (PPI) mis-selling.
But Lloyds, now 33% state-owned, looks to be returning to health as it continues to dispose of non-core assets including Australian insurance and corporate lending businesses.
It has also spun off more than 600 branches under the revived TSB brand, with plans to float the business on the stock market next year.
Credit Suisse analysts expect third quarter pre-tax profits of £793m, with £300m of restructuring charges and £300m in provisions for customer redress following PPI and other mis-selling claims. Last year Lloyds recorded a £144m pre-tax loss for the period.
Meanwhile Barclays, which reports on Wednesday, received strong support earlier this month for a £5.8bn rights issue offered as part of a plan to meet the City regulator’s demand that it plug a £12.8bn hole in its finances.
The issue saw 95% of shares taken up, with the remainder offered in the wider market by underwriters.
Hargreaves Lansdown analyst Keith Bowman said Barclays was likely to suffer from uncertainty over US financial policy that has hit other banks with significant investment arms, though better conditions for its retail bank could offset this.
BT unveils second quarter results on Thursday amid concerns that it has overestimated the size of the market for its TV sports channels as it vies with BSkyB over Premier League football coverage.
BT has paid £738m for the rights to show 38 top-flight football games a season for three years. It said earlier this year that it expected earnings in the second quarter to the end of September to take a £100m hit as it starts to recognise programme content costs.
But BSkyB has shrugged off the competition, announcing earlier this month that record numbers tuned in to the start of the football season, with an average audience of 1.55m compared with 1.29m last year.
BT’s sports TV offering is bundled in free for broadband customers, while the addition of a large chunk of Virgin Media subscribers took the total equipped to watch the channels to three million by the middle of August.
On average, City experts are pencilling in a 0.8% drop in overall revenues for the quarter to £4.44bn and adjusted profit before tax to fall 9% to £555m.
Oil giant BP posts third quarter figures on Tuesday in the wake of a legal victory for the group to limit compensation payouts for the 2010 Gulf of Mexico oil spill.
A US federal appeals court said the terms of a compensation agreement struck with BP last year should be reviewed to help stem bogus or inflated claims for damage by businesses from the disaster, when an explosion on its Deepwater Horizon oil platform killed 11 men and sparked the worst spill in US history.
Third quarter figures are expected to show profits coming under pressure, with analysts expecting a 37% plunge year-on-year to 3.17bn dollars (£2bn). The group is up against tough comparisons after seeing profits boosted by sharply higher refining margins a year earlier.
However, the quarterly profit result will mark an improvement on the 2.7bn dollars (£1.7bn) recorded the previous three months thanks in part to an 8% rise in oil prices.