Half-year boosts for traditional banks and more woes for challengers

It’s been an interesting week for banking, as half-year results have been posted and the battle between traditional and challenger banks and lenders, wages on.

Barclays announced its highest profit for nine years, in H1, despite the sharp fall of the pound and the undercurrent of Brexit gloom. Its underlying profitability -that is profit with the effects of one-off charges and other costs stripped out – hit £3.1 bn, and its attributable profit hit £1 bn. The bank’s earnings per share for the past six months also rose, reaching 12.6p. So, is it a good time to buy Barclays? Some analysts think shares in the bank are undervalued, with their price standing at just 144.42p at the time of writing. However, the threat of a no-deal Brexit is still looming on the horizon, and there is uncertainty about what that will mean for banks. As one of the biggest lenders in the UK, there’s no doubt that post-Brexit economic instability will affect Barclays, which is why some might perceive them as a risk despite rising profits. The bank has continued to return value to shareholders though, increasing its interim dividend by 20% to 3p, and its forward yield is expected to rise to 6.2 % by 2021, meaning it may be attractive for income investors.

Government-backed RBS also announced bumper dividends, with it’s 47% rise in profit for the first half of 2019, providing a £1.7 bn windfall to shareholders. Like Barclays, major cost-cutting and restructuring seem to be the key factors in RBS’ profit climb, along with a £44m gain from the completion of a merger between Alawall and Saudi British Bank. The bank has issued a warning for 2020 though, in anticipation of political uncertainty and the contraction of the yield curve. Although RBS has maintained its outlook for the rest of this year, it warns that in 2020 it’s unlikely to achieve its target return on tangible equity on more than 12%. This warning caused shares to tumble by 5.5% and has divided opinion on whether they are a good buy, with many analysts urging caution as economic uncertainty is likely to weigh heavily on RBS’ share price in the long-term.

It’s not been such good news for new generation financiers of late – London-based challenger bank Metro has been in the spotlight after a regulatory probe led to a share price crash, reaching an all-time low of 294.4p this week. A mispricing scandal, attention from regulators and the potential sale of a loan portfolio has caused Metro’s shares to fall by 85% of their value since March. Many analysts are also urging investors in Funding Circle to sell, after the peer to peer lending platform’s half year report revealed a loss of £19.7m, compared to £13.9m in the same period a year ago. Although the platform has forecast that its EBITA loss for 2019 will still be an improvement on last year’s, city analysts are widely sceptical.

Laura G