UK bank earnings set to be mixed

UK bank shares have rallied with the rest of the European sector this week in step with widespread relief following the market’s preferred candidate winning the first round of France’s presidential election.

The apparently robust first quarter reported by Standard Chartered on Wednesday added further support leaving the FTSE 350’s banking sector up 4.7% over a week, with Barclays adding 7% in five sessions, Lloyds and RBS around 5% better a piece and HSBC lagging with a 3% weekly gain.

The surprising drop in bad loan impairments at Asia, Mid-East and Africa-facing StanChart, which drove a c.70% jump in operating income to $1bn in its first quarter, does not read across to Britain’s domestic lenders. And in fact, a typical motley assortment of earnings performances is likely to trim their shares, which in the case of HSBC and Barclays are already trading in the red for the year.

Here’s a list showing when each of the remainder of UK-based banks will report quarterly results.

• Lloyds Banking Group Q1 2017 Interim Management Statement 27th April, 7.00am BST
• Barclays Q1 2017 Interim Management Statement, 28th April 7.00am BST
• Royal Bank of Scotland Q1 2017 Interim Management Statement, 28th April 7.00am BST
• HSBC Q1 2017 earnings, 4th May 4.00am BST

At Lloyds Banking Group, which provides more mortgages in Britain than any other financial services company, investors will be eyeing progress towards its key target of net interest margins - the difference between earnings for lending and pays out for funding - to be above 2.7% this year. Lloyds will of course stand a better chance of hitting its NIM target if the era of interest rate cuts is indeed well and truly over. Much depends on the economic impacts of Brexit, though further leeway may be afforded from the BoE’s Term Funding Scheme, lower savings rates, and faster pay-offs of expensive post-crisis debt. Lloyds’s total income is forecast to be flat at £4.38bn in the quarter that ended in March.

For Barclays, a run of wins by its fairly recently installed CEO Jes Staley, from successful and swift disposals may be coming to an end as the list of assets on the block is depleted. It will be interesting to see if the slackening off of non-core disposals coincides with backsliding of Barclays’ surprising jump in capital quality to a 12.4% common equity Tier 1 ratio. About 40 basis points of the move came from adjustments to the bank's defined-benefit pension scheme deficit and the bank's currency translation reserve. Any change in the wind over UK government bonds and global currency markets, could trim core capital in a way that investors will dislike. The complete exit from Barclays Africa would probably increase CET1 ratio again by up to 75 basis points, but progress has been delayed.

At RBS, the moveable feast of regulatory and cost attrition, CEO Ross McEwan needs to demonstrate some sort of meaningful, albeit likely modest progress to reducing costs to 50% of income by 2020 from 66%. Already, with the strategy over Williams & Glynn again turning hazy, investors will be wary of any apparent addition to the banks numerous remaining challenges on that path.

The least-UK focused bank, HSBC, has the benefit of an unexpectedly dire final quarter of 2016 on its side—its first quarter of this year could scarcely be worse than the one in which a writedown of a largely forgotten wealth management unit brought a multibillion profit decline. The risk is of course that more one-off impairments are in store. Even if just a fraction of those seen in Q4 2016, they are likely to stretch investors’ patience again.