The Week Ahead: Updates due from Barclays, Lloyds, RBS, BT, BP, Shell and Next
RESULTS from Britain’s part-nationalised banks and oil giants BP and Royal Dutch Shell will guarantee a significant week for investors.
New Barclays boss Antony Jenkins will deliver his first set of figures on Wednesday as the banking sector falls under the spotlight again with the third-quarter results season.
Mr Jenkins, formerly head of retail, took up the position of chief executive in August as Barclays reputation was in tatters from the fallout of the Libor rate-rigging affair.
Barclays is expected to unveil adjusted pre-tax profits for the three months to September 30 of �1.7 billion, up 27% on the same quarter in the previous year.
But this will not include an additional �700 million hit for covering the cost of mis-sold payment protection insurance claims nor a �1.1 billion own credit charge.
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The PPI mis-selling affair is just one of a series of reputation-scarring scandals to have hit Barclays along with rigging Libor and mis-selling complex interest-rate swap arrangements to unwitting businesses.
Barclays was fined �290 million by UK and US regulators for manipulating Libor, an interbank lending rate that affects mortgages and loans.
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As well as the departure of Mr Diamond and Mr Agius, the affair triggered a fierce debate in Westminster over banking ethics and spawned several closely-watched hearings before the Treasury Select Committee.
Barclays is also in the midst of conducting its own internal investigation into the events.
The recent events are likely to overshadow any progress made at the bank as another strong performance from the investment banking arm drives the underlying performance.
The City will be looking for progress on running down its bad debt and lowering its eurozone exposure, as well as focus on the key measure of return on equity.
The bank’s recently announced deal to buy savings and mortgage business ING Direct UK will boost Barclays’ savings business by �10.9 billion and its mortgage book by �5.6 billion.
Lloyds Banking Group is facing an additional charge for mis-sold payment protection insurance (PPI) claims of up to �1.5 billion in its third quarter update on Thursday, brokers Credit Suisse have warned.
The forecast was made in light of the extra �700 million set aside by Barclays and takes into account the size of Lloyds’ loan book.
The total bill for the part-nationalised lender would as a result soar to nearly �6 billion and is bound to leave taxpayers wondering when they will get their money back.
Stripping out one-off items including PPI charges, Credit Suisse has forecast pre-tax profits at Lloyds of �578 million for the third quarter, compared to a loss of �727 million in the previous three months.
Like Barclays before it, Lloyds entanglement in the PPI scandal is likely to overshadow progress that the 40% state-owned bank has made with its turnaround.
The bank sold more than �1 billion of investments it inherited from its disastrous takeover of HBOS in the quarter as part of chief executive Antonio Horta-Osorio’s drive to return its balance sheet to health.
Lloyds had already sold some �23 billion of non-core assets so far this year on top of �53 billion last year.
And a recent stand-off with the Financial Services Authority (FSA) has revealed its determination to restart payouts to shareholders.
The group reportedly wants to pay a small dividend from the profit the 40% state-owned lender expects to make next year, its first since the Government acquired its stake in the 2008 rescue deal.
But the Financial Services Authority (FSA) is understood to have threatened to block the move because it wants Lloyds to preserve cash to protect itself from a potential eurozone break-up or other future financial shocks.
The lender has reported strong progress in running down its bad debts in recent quarters, while income at its core businesses has delivered consistently strong growth.
Fellow bailed-out lender Royal Bank of Scotland has been making similarly strong progress, when one-off factors such as PPI and its costly recent IT glitch are discounted.
The 80% state-backed lender is forecast by Credit Suisse to report pre-tax losses of �1.8 billion on Friday, although this will be largely driven by an accounting effect on the value of its own credit.
As well as driving up profits at its core businesses and driving down bad debts, RBS recently exited a state-backed insurance scheme covering its poorer-quality assets.
The significant move was hailed by Chancellor George Osborne as another step towards returning the bank to the private sector.
RBS will save �1.4 million a day from leaving the Asset Protection Scheme (APS), having paid �2.5 billion since signing up February 2009.
However, the City is likely to place some focus on its collapsed �1.65 billion branch sale with Santander.
Nationwide Building Society is reportedly considering a bid for the 316 branches, which EU regulators are forcing RBS to sell, although nothing has been confirmed.
Next is unlikely to spook investors with its trading update on Halloween as the high street giant reveals another rise in sales.
The fashion and homewares chain, which has around 540 stores, is forecast by brokers at Panmure Gordon to report a 1% rise in sales at its stores and a 14% increase in sales on its website Next Directory in the three months to October.
Next does not offer like-for-like figures.
Retail sales figures for September revealed a surge in sales in warmer clothing and back-to-school attire, which is expected to help Next’s figures.
Philip Dorgan, an analyst at Panmure Gordon, recently raised forecasts for the retailer to reflect “a more benign environment for clothing retailers” and “near term influences on UK household post-tax discretionary income”.
Next, which has been helped by new space offsetting lower sales from shops open more than a year, recently reported a 10% rise in pre-tax profits to �251 million in the six months to July.
And the group, which has seen its share price steadily climb this year, recently raised its full-year profit hopes to between �575 million and �620 million, from an earlier forecast of between �560 million and �610 million.
Prices have been flat in the last year and the company has previously said it does not expect to see any significant price pressures ahead.
The autumnal weather was behind a 2% month-on-month rise in clothing sales in the UK in September, the Office for National Statistics said.
Oil giant BP will face questions on Tuesday over the impact of its recent �16.7 billion deal with Russia’s Rosneft when it unveils its third quarter results.
State-backed Rosneft agreed to buy BP’s 50% stake in its troubled TNK-BP joint venture for 17.1 billion US dollars (�10.7 billion) in cash and 9.7 billion US dollars (�6 billion) worth of Rosneft shares.
Investors have been left wondering how they will benefit from the deal, which will see BP grab a 19.75% stake in Rosneft as it becomes the world’s biggest publicly traded oil company.
While BP had a fraught relationship with the Russian billionaire owners of TNK-BP, the venture is thought to have earned the British firm around 19 billion US dollars (�11.8 billion) in dividends and shareholders are pushing for cash to be returned to them.
Stuart Joyner, analyst at Investec, said: “We see potential for a special dividend.”
Meanwhile, BP will count the cost of its far-reaching disposal plan as lower production triggers a 25% slide in quarterly profits.
BP is expected to report underlying replacement cost profit of 4.1 billion US dollars (�2.5 billion) in the three months to the end of September, a 25% drop on the same quarter last year.
BP is becoming an increasingly smaller company as it sells off large chunks of its business as part of its pledge to raise cash to pay the costs of the 2010 Deepwater Horizon disaster.
While the TNK-BP exit fell outside this pledge, BP has recently sold a Texas City refinery, where 15 people were killed in an explosion in 2005, five oil and gas fields in the US Gulf of Mexico and its Bristol-based liquefied petroleum gas (LPG) distribution arm.
The company is closing in on its asset sales target of 38 billion US dollars (�23.6 billion), after selling a total of 35 billion US dollars (�21.7 billion) to date.
And the spectre of the 2010 oil spill disaster still hangs over the company, as the US Department of Justice (DoJ) prepares to prove gross negligence or wilful misconduct at trial, while a separate out-of-court settlement for economic damages is thought to be just weeks away.
BP has struggled to shake off the reputational blow of the fatal explosion, despite paying out billions of dollars to cover costs and claims.
Elsewhere, rival Royal Dutch Shell will give its third quarter update on Thursday and is also expected to reveal a rise in profits quarter-on-quarter as it benefits from higher oil prices.
Shell is forecast to report third quarter profits of 6.3 billion US dollars (�3.9 billion), up 10% on the previous quarter but down 10% on the same quarter last year.
BT will be looking to calm investors with its second-quarter update on Thursday after it revealed weak sales to businesses and an under-pressure performance in crisis-hit Europe.
The telecoms giant is expected to report pre-tax profits of �595 million for the three months to the end of the September, a 4% rise on the previous year, while revenues will slide 7% year-on-year to �4.5 billion.
Shares in the telecoms giant have fallen since it posted a 6% drop in revenues to �4.5 billion for the first quarter as its Global Services division reported sharply lower corporate spending, reflecting tough conditions in Europe and the financial sector.
And the stock has continued to come under pressure as competition in the television, broadband and phone sector heats up as Virgin Media and BSkyB broaden their services.
In addition, deposits on multimillion pound deals for Premier League football and Premiership rugby broadcast rights will hit the group’s free cash flow - a key measure which allows a company to pursue opportunities that enhance shareholder value.
Maurice Patrick, European telecom services analyst at Barclays Capital, said: “The domestic consumer fixed line business continues to perform and remains one of the most robust in Europe.
“However, more than 50% of BT group revenues are exposed to corporate spend, where the macro climate is causing increasing downwards pressure.”
BT’s consumer-facing Retail division will hope to build on its strong first-quarter performance, when it added 85,000 broadband customers and 150,000 superfast fibre broadband customers.
Looking ahead, BT plans to hike its prices from January 5, with phone calls, line rental and broadband rising by up to 5.9%, more than twice the rate of inflation.