UK and European banks limped in Q3

Summary

UK and European megabanks are set to report more lacklustre growth.

‘Lost’ year for growth

Shares of the biggest-listed UK banks by market capitalization are having a terrible year. Royal Bank of Scotland is the best performer but was down some 17% since the beginning of January by Tuesday afternoon. Standard Chartered is faring the worst, nursing a 32% loss after its own struggle for sustainable growth was compounded by fresh regulatory scrutiny in Africa. A challenging year in geopolitics has stemmed halting attempts by lenders to build on progress in leaving legacy conduct and capital issues behind in recent quarters. This applies to banks in most parts of the world, but most obviously to dominant lenders in Europe.

Mediocre trading

Hopes that investment businesses, including trading, would see a new era of profitability have been dashed again after another mixed, though mostly lacklustre, performance by giant U.S. rivals like JPMorgan, Goldman, Morgan Stanley and Citigroup, and Bank of America. Whilst equities trading revenue rose 7% on average in the three months to September for that group, even the most solid, including the largest U.S. bank by assets, JPMorgan, contributed to a 3% average slide in their broader market operations known as FICC, which trades fixed-income, commodities and currencies. UBS, which has the most exposure to equities, and reports on 25th October, would see revenues from share trading rise little more than 2% year-on-year, if Wall Street banks’ performance was replicated in Europe. Barclays, which has a smaller stock market operation would see less benefit. Lloyds and RBS have negligible remaining exposure to markets. With little evident growth elsewhere across large lenders, they will continue to rely on increasing efficiencies to safeguard all important returns on equity. As investors in big U.S. banks know however, the market is fickle about rewarding banks for—essentially—cutting costs. Despite top and bottom-line beats at most of the lenders named above, almost all saw their shares fall immediately after results. Stock market reactions to European bank reports will be compounded by current jittery sentiment, making it even less likely shares will benefit from quarterly results.

Barclays reports quarterly earnings on Wednesday. Earnings per share are forecast to rise 13% to 4p and revenue to fall 1.8% on the year to £5.08bn. HSBC reports quarterly earnings (in dollars) on 29th October. EPS is seen at $0.20 with revenues largely flat at $14bn. Lloyds Banking Group and RBS will report interim updates on 25th and 26th respectively. Lloyds’s third quarter underlying pre-tax profit is forecast at £1.78bn, 14% lower than the same quarter a year before. RBS’s core earnings, known as earnings before interest and tax (EBIT), are expected to come in 3.75% lower to £1.33bn in the third quarter.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.