It’s that time of year again, as we prepare for companies’ Q1 earnings season. Amid a politically charged climate, the corporates are ready to take over. With the global economy at a turning point, you can’t afford to miss out!

One of the hottest tickets in town is the UK banking sector. As the lifeblood of the British economy, the financial sector provides a significant proportion of GDP and, subsequently, economic growth. With the most significant economic event in a generation now underway, the results of Barclays, Lloyds, HSBC and the Royal Bank of Scotland will likely act as a key barometer for the UK economy and stock markets during this exciting time.

What events influenced banks over the previous quarter? What future hurdles remain for these institutions? This report will provide you the above information and further in-depth analysis on Britain’s biggest banks.

The Brexit Effect

Despite having only been triggered in March, many UK banks are already exploring the possible impact that Brexit will have. Contingency plans are being put into place to help negate any significant impacts arising from the potential loss of financial access to the European continent. This has become a bigger worry given that the European Central Bank has warned that banks may face a minimum 6 month wait before being granted operating licences. Already, several banks have made the market aware of their intention to move staff from the UK to mainland Europe, including UK-based HSBC and several large US peers. With uncertainty surrounding London’s future hanging in the air, how will UK-based financial institutions deal with the imminent negotiations?

The Federal Reserve’s Balancing Act

A widely expected March interest rate hike by the US central bank was overshadowed by market disappointment that policymakers were not more hawkish in their 2017 outlook. Talk has also moved towards the Fed’s bloated balance sheet, as Chair Yellen et al. look to discard some of the $1 trillion of assets that were accumulated during the height of the financial crisis. Could bank-friendly rate hikes now be put on the back-burner?

Trump ado about nothing?

The US President put forward several banking-friendly policy proposals while on the campaign trail, however further details on personal and corporate tax reform and banking sector deregulation have been scant. A recent pledge to completely replace the Dodd-Frank Act, the vast framework of regulations limiting US banks’ ability to undertake risk, has been met with some scepticism given his failure to meet a similar pledge to repeal and replace Obamacare. Having now gone back on his promise to label China a currency manipulator, will the Donald deliver on banking sector friendly deregulation or will this be another lofty let-down for the President?

For those all-important Q1 reporting dates for the four major UK banks, and a recap of how they performed on the back of their Q4/Full Year results in February, have a look over the page!

Remind me, what dates are the UK Banks reporting their Q1 results?

UK banks begin reporting Q1 results in the final week of April and conclude on 4 May, as detailed below:

What was the reaction to UK Bank’s FY results?

In February, the four major UK banks reported their full year results for 2016 over the course of four days in concession. HSBC was the first bank to report figures to the market on a day to be forgotten for the company’s executives. Shares closed a whopping 6.4% lower as the bank reported a 62% fall in pretax profit to $7.1bn, less than half the figure that was expected by analysts. Surely it could only get better from here?

Next up was Lloyds, looking to better a disappointing day for its competitor. It managed to succeed in impressing investors as pre-tax profits rose spectacularly to £4.2bn, more than doubling, while also announcing a special dividend of 0.5p/share. The results sufficiently excited investors, leading shares to close 4.3% higher.

Barclays was the penultimate UK institution to report their FY’16 results and received a frosty reception to what appeared to be a positive set of results. Although profits almost tripled to £3.2bn in 2016, the performance was underwhelming according to many city analysts. The was due to headline profits being helped north by reduced costs relating to legal charges, rather than growth, which saw the shares finish 2.9% lower at the close of play.

Finally, the Royal Bank of Scotland reported its results only a few days after a 7% share price jump as the bank reported it will not pursue a sale of its Williams & Glyn franchise. Unfortunately, the excitement didn’t last long as the bank reported it had notched its ninth consecutive yearly loss as a result of legacy issues. Shares eventually closed 4.3% weaker in reaction. Could RBS turn a new leaf and start 2017 on a strong footing?

What did early US banks’ results show?

As is almost always the case in earnings season, major stateside banks provide the opening ceremony, and this quarter is no different. US behemoths Citigroup, JP Morgan and Wells Fargo all released their Q1 results on 13 April, prompting a variety of investor responses.

JP Morgan was the first bank to report results over the wires, reporting a beat on both the top (revenue) and bottom (earnings-per-share) lines. A $6.45bn Q1 profit came as a result of improved trading figures at the US giant. Next to share its figures was Citigroup, who also beat on both lines while seeing a 17% increase in profit. It too said results from the trading desk were the reason behind the sharp increase, as interest rate hikes provided a boon to currency trading. Finally, Wells Fargo produced a mixed bag of results, missing on the top line but beating on the bottom line due to the bank’s ongoing scandal involving false accounts being created.

Over the page, we’ll provide an in depth look at each of the four banks, highlighting key levels, technical analysis and providing City brokers’ consensus price targets. Which bank do they prefer? Read on to find out!

Barclays (BARC)

Will shares recover to challenge resistance at 240p or pull back towards support at 200p?

• After post-Brexit rally to 240p, shares have fallen back to support at 210p
• Stochastic indicator has fallen sharply to oversold
• Relative Strength Index (RSI) negative divergence with price
• Directional Indicators diverging bearishly

Broker Consensus: 39% Buy, 47% Hold, 14% Sell

Bullish: Exane BNP Paribas, Target 290p, +21% (3 Apr)

Average Target: 239p, +10% (12 Apr)

Bearish: Bernstein, Market Perform, Target 190p, -21% (31 Mar)

N.B. All pricing and consensus data was sourced from Bloomberg on 12 April. Please contact us for a full, up to date rundown.

HSBC (HSBA)

Will shares bounce back to 2017 highs of 720p or pull back towards support at 590p?

• Shares have fallen back to support at 645p after rallying to 720p highs in February
• Relative Strength Index (RSI) stuck in bearish half of chart
• Bearish cross by directional indicators; momentum turned negative

Broker Consensus: 27% Buy, 53% Hold, 20% Sell

Bullish: BNP Paribas Equity Research, Buy, Target 802.5p, +22% (21 Feb)

Average Target: 652p, -0.7% (12 Apr)

Bearish: Grupo Santander, Underweight, Target 442p, -33% (23 Mar)

N.B. All pricing and consensus data was sourced from Bloomberg on 12 April. Please contact us for a full, up to date rundown.

Lloyds (LLOY)

Will shares bounce back to 74p 2016 highs or pull back towards Brexit lows of 47p?

• On back foot since dividend payment of 2.2p. Will results provide bullish catalyst or add to bearish woes?
• Relative Strength Index (RSI) at oversold level
• Momentum remains negative, however is off its worst levels
• Average target price 15% above current level while brokers positively-biased

Broker Consensus: 59% Buy, 19% Hold, 22% Sell

Bullish: AlphaValue, Buy, Target 90.4p, +45% (6 Apr)

Average Target: 72p, +15% (12 Apr)

Bearish: Bernstein, Underperform, Target 40p, -36% (31 Mar)

N.B. All pricing and consensus data was sourced from Bloomberg on 12 April. Please contact us for a full, up to date rundown.

Royal Bank of Scotland (RBS)

Will shares return to test 14-month highs of 260p or pull back towards 2017 lows of 213p?

• After post-Brexit rally, share price has fallen back from 14-month resistance at 260p
• Stochastics oversold; Momentum and MACD turned negative
• Directional Indicators diverging negatively
• Broker consensus majority negative

Broker Consensus: 11% Buy, 54% Hold, 35% Sell

Bullish: Grupo Santander, Buy, Target 346p, +46% (23 Mar)

Average Target: 236.9p, +2.4% (9 Feb)

Bearish: Bernstein, Market Perform, Target 160p, -31% (31 Mar)

N.B. All pricing and consensus data was sourced from Bloomberg on 12 April. Please contact us for a full, up to date rundown.

Want to take advantage of the above opportunities right now?

Whether you see UK stocks going up or down for the remainder of the year, tradable opportunities will present themselves regularly. We’re here to help you weed them out and capitalise on them. Accendo Markets can help you increase your profit potential with the use of leveraged instruments such as CFDs, a flexible alternative to traditional shares that is currently exempt from UK stamp duty.

CFDs: Like shares, but more flexible

The example above shows how buying 1,450 shares in British Land @ £6.90 requires an outlay of around £10,000 plus commission (see left-hand box), while the same exposure via a CFD requires about £500 plus commission (see right-hand box). If a trader invests in British Land, one would assume they believe the share price is likely to move in their favour. After considering the ‘worst case scenario’ and assigning funds to cover it, the trader may conclude there’s little point in exposing the full £10,000 to the BLND shares - some of that capital could be put to good use elsewhere in the markets. (Source: IG, Prices indicative)

CFDs are leveraged instruments, but you don’t have to use the leverage

If you had, say, £10,000 to invest in the stock market, you could deposit that amount into a share dealing account and purchase shares in a company. You would pay commission to open the position, 0.5% in stamp duty and the full £10,000 will be tied up in your chosen shares with any profit or loss based on that exposure. The same £10,000 worth of exposure can be secured with a CFD for a fraction of the initial outlay thanks to leverage, with the risk and reward the same as if £10,000 worth of traditional shares were held. But should you not be interested in leverage, you can always treat CFDs like shares. Simply deposit £10,000 into a CFD trading account and take the equivalent CFD position which will tie up just £500 (note that overnight financing costs will still apply). The remaining £9,500 is not tied up, so you can use some of that to take advantage of another short-term opportunity elsewhere, or simply leave it on the account to support any losses. Best of all, using a CFD means you pay no stamp duty!

What’s your view?

Think shares will rise? Take a long position by buying CFDs (buy low, aiming to sell high). Think they’ll fall? Take a short position by selling CFDs (sell high, aiming to buy low). For a more detailed rundown of CFDs, their mechanics, associated costs and some trading scenarios download our ‘Comprehensive Guide to CFDs’ here.

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