What to expect from February’s FY results

The most globally exposed of the UK banks, HSBC will have to navigate the aforementioned macroeconomic trends to a much greater degree than its UK peers. With locations across the globe, HSBC is exposed to China as it expands to become a consumer based economy, the US and the Trump administration exploring deregulating as well as recent tax reform, and of course the impact of Brexit on its London headquarters.

Increasing inflation in the US has also seen investors become warier of a faster cycle of interest rate hikes in the US, a key driver behind recent market volatility. Whilst this contributed to the equity market correction of early February, it may also prove to be positive for global financial institutions.  Increased volatility allows its global trading departments to turn a greater profit, benefiting from years of professional experience, while increasing interest rates across the globe also allow the bank to charge higher interest repayments on loans to consumers.

Just six weeks into 2018, Barclays has already been on a rollercoaster of emotions. The bank received a second charge from the UK’s Serious Fraud Office over a 2008 Qatari cash loan that saved it from a government bailout. This charge is against its UK banking unit and therefore threatens the banking licences allowing it to operate.

Whilst this is expected to be a protracted affair like previous investigations into peers following 2008, more immediately the bank will be influenced by matters across the pond. While the recent Republican tax reform bill is expected to be long-term positive for Barclays, the bank has announced a one-off, £1bn charge resulting from it. However, on a positive note recent market volatility may have already helped the bank’s key trading division.

The Royal Bank of Scotland (RBS), meanwhile, has also faced a tough time. A series of legacy issues, including the lawsuit against the infamous GRG restructuring unit and a long outstanding fine with the US Department of Justice over mortgages mis-selling, have taken the shine off an impressive share recovery from post-Brexit lows.

Analysts will look for RBS to round off a strong 2017, hoping that three quarters of continuous growth will finally end its nine years of annual losses. Further clarity on the outstanding DoJ settlement will also be welcomed.

Finally, Lloyds, the owner of the UK’s largest mortgage book, will be the UK bank most influenced by a more hawkish Bank of England. Lloyds will be able to charge higher interest on mortgages following rate hikes, however it could also have a detrimental knock-on effect by reducing demand from potential homeowners.

More immediately, Lloyds is set to announce a three-year strategic plan alongside its FY results, also announcing a further provision to cover the mis-selling of PPI, the scandal looking set to cost the bank £19bn in total. After a £1bn increase in provisions last year, Morgan Stanley estimates the latest provision could amount to £450m.

Although some, including Morgan Stanley, believe Lloyds may announce a special dividend of 1.5p on top of its 3p 2017 dividend, Credit Suisse instead believe a share buyback worth up to $1bn will be proposed. This follows a similar move by peer HSBC which announced a $2bn share buyback for 2017.

Over the page, we look at the technicals behind these UK banks. Found this report informative? Our research team sends similar publications daily on indices, commodities and other blue-chip equities. To discover more, sign up here.