Shares in British lenders gave up much of their 2023 gains in the recent upheaval that saw HSBC Holdings Plc rescue Silicon Valley Bank’s UK unit shortly before Credit Suisse Group AG was swallowed by UBS Group AG. Their first-quarter results will be scoured for signs of how the sector weathered the recent turmoil.
(Bloomberg) — Shares in British lenders gave up much of their 2023 gains in the recent upheaval that saw HSBC Holdings Plc rescue Silicon Valley Bank’s UK unit shortly before Credit Suisse Group AG was swallowed by UBS Group AG. Their first-quarter results will be scoured for signs of how the sector weathered the recent turmoil.
That includes questions around deposit movements, the overall direction of the economy and whether interest rate rises can continue to boost profits. When the UK’s biggest banks reported 2022 results in February, their shares dropped with investors weighing a softer-than-expected guidance for net interest margins — a key measure of profitability.
Given the recent share price drop, UK banks are “quite attractive at the moment,” said Morningstar analyst Niklas Kammer, pointing to the strong deposit bases such as the one of Lloyds Banking Group Plc which he views as a “differentiating factor” in the years to come.
Standard Chartered Plc will be out first with results on Wednesday, followed by Barclays Plc, NatWest Group Plc, HSBC Holdings Plc and Lloyds.
Flight-to-Safety
Deposits at the largest UK lenders might be getting a boost if customers embarked on a similar flight-to-safety that big US lenders like JPMorgan Chase & Co. have already reported.
A dent to profits is set to come from higher rates that banks will have to pass on to savers. “There’s no way around it,” Kammer said, adding he expects banks’ forecasts for deposit beta — the portion of the BOE’s benchmark rate that gets passed through to bank clients — to be the main talking point on earnings calls.
While Britain’s economy has so far been holding up better than expected, there are still worries about asset quality as borrowers face the biggest cost-of-living squeeze in decades amid persistent inflation.
There’s a “massive amount of unsecured debt and the concern is if that means we’ll start seeing more defaults on retail mortgages,” said Isabelle Jenkins, who leads the financial services practice at PwC UK.
Barclays Traders
Barclays’ investment-banking operations will be another focal point of the reporting season. The bank’s fixed-income trading has helped offset a slump in dealmaking activity in past quarters. Its traders face a tough comparison compared to the first quarter of 2022 when investors navigated volatility in the wake of Russia’s war in Ukraine.
Estimates compiled by Bloomberg expect revenue from fixed-income, currency and commodities trading to fall 11.4% to £1.5 billion ($1.9 billion), while equities trading revenue is seen down 17.9%.
Beyond the trading floor, the Barclays board may also find itself defending its previous backing for former boss Jes Staley. Barclays disclosed news of a regulatory probe into how Staley had represented his relationship with pedophile financier Jeffrey Epstein in February 2020.
But the executive was allowed to continue in his role with the support of Chairman Nigel Higgins and the rest of the bank’s board until November 2021, when he quit after regulators shared preliminary findings that suggested he had underplayed his relationship with Epstein. Staley is challenging the findings.
Last month, Higgins described a recent slew of Epstein allegations against Staley as “serious and new.”
Read More: Barclays Directors Should Be Probed Over Staley, Says Bramson
HSBC Battle
Along with HSBC’s exposure to Chinese commercial real estate, capital returns will be in focus for Europe’s largest lender, which said earlier this year it would consider resuming share buybacks in May.
Citi analysts expect HSBC “to guide to $2 billion of general buybacks” at the upcoming results and restart quarterly dividends. HSBC has already pledged a special dividend once the sale of its Canadian unit is completed.
There will also be plenty of interest in how the clash between HSBC and Ping An Insurance Group Co. continues to play out. The bank’s largest shareholder last week publicly called on the lender to spin off its lucrative Asia businesses. HSBC wasted no time in reiterating it believes Ping An’s plan would destroy shareholder value.
Read More: HSBC’s Fight With Top Shareholder Intensifies Before Key Vote
–With assistance from Marion Dakers.
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