This week taught investors several things about their beloved UK Banks. Some continue to recover from the financial crisis while others are still struggling. This leaves investors with a choice to make about what kind of growth story to be invested in or to trade around. One which offers share price returns, chunky dividends or even both? US deregulation is one driver helping the sector globally, as is the prospect of higher interest rates which boost bank profitability. The sector also benefits from general economic recovery, helping grease the cogs of business.

Lloyds FY results surprised to the upside with higher than expected profits, no PPI provisions in the last quarter, dividends +13%, more special dividends and a positive outlook that may well lead to consensus upgrades. The turnaround to a simpler, cleaner more UK-focused bank remains on track. The government is also nearly shot of its bailout stake (only 3% left), all of which helped send the shares to fresh post-Brexit highs to revisit the key 70p level. The hope is that Lloyds keeps grinding out quarterly growth and returns that help usher the shares back towards the 89p highs of mid-2015, 30% above where we stand.

HSBC, however, disappointed with a sharp fall in profits due to myriad one-off costs that saw its shares hammered on Wednesday. However, as the biggest of the banks it is still making a pretty penny and its 6.2% dividend yield – which it is confident it can keep paying – and a $1bn share buyback means a disappoint this quarter is a little easier to stomach. The stock remains an attractive option for investment seekers who have also benefited from 66% returns since Brexit vote lows via exposure to emerging markets and Asia.

Barclays delivered good news by returning to profit in 2016, helped by a welcome 69% drop in legal charges, a surge in investment banking growth, and the fruits of group-wide restructuring. This harks back to better times when investment banking accounted for the lion’s share of group profits and bodes well for the new CEO’s gamble to pivot back towards the struggling unit, seeing superior growth potential. However, with superior returns comes higher risk and the bank remains at loggerheads with the US over mis-selling compensation. It is also paying a smaller dividend (1.3% vs 3% prev) for another year as part of its turnaround.  The shares have doubled since the referendum.

RBS (still 70% government owned) chalked up a ninth straight annual loss which is likely to stretch to ten with an outlook suggesting more legacy costs this year and a return to profitability in 2018. With outlook always king, the fact the bank still has US legal issues hanging over its head like BARC is a headwind. While it continues to make losses and remains in the clutches of the taxpayer, dividends are a no-no. Meaning good news is necessary, likely via lower costs and legal issues dealt with. The share price struggle reflects this, with more upside to 2015 highs than downside to Brexit lows.

With all this in mind, investors need to decide what their appetite is for both risk and income in the UK banking sector. For the highest yield, HSBC wins hands down and its exposure to Asia could help insulate it from Eurozone politics and Brexit issues. For recovery potential LLOY has done most of its hard work but continued progress could offer growth through the both share price and growing dividends (5.5% yield), even if the latter is likely lower than HSBC until 2018.

BARC is ahead of schedule on restructuring but has legal risks attached. It offers a dividend, but a low one for another year. Its investment bank could help it outperform peers, benefiting the share price, so long as global growth holds up. RBS may look cheap but it has much work ahead of it, still loss-making, with legal risk attached and no dividend. Any upside lies in the share price. Meaning good news required.

Whichever you choose to Buy ( or even Sell short) Accendo Markets is here to help you trade or invest. This style of analysis is what you should expect from us daily. Our job is to help you decide where the markets are headed, be it shares, indices, commodities or currencies. If you like what you’ve read, and would like to do so permanently get access here. You won’t regret it.

Enjoy your weekend!

Mike van Dulken, head of Research, 24 Feb