UK banks will be in the spotlight in the week ahead as the European earnings season continues. A key metric to look out for when analysing bank earnings is interest income. This is the difference in the rates it charges for loans versus what it pays on deposits. During 2023 we saw interest rates rise significantly across developed economies which has allowed the interest margin to increase. However, should rates drop lower at some point this year, could revenues generated from interests drop in tandem?
Here is a quick overview of what to expect from the major UK banks reporting this week.
Lloyds Banking Group PLC
According to data from Reuters, net interest income is expected to have dropped marginally in 2023 to £13,85m from £13,95m in 2022, but it is forecasted to drop another 3% in 2024. Fourth-quarter revenue is expected to have dropped 1.9% from the previous quarter to £4,42m but full-year revenue is estimated to have risen 3.3% from 2022 to £18,64m. That said, net income is expected to have shrunk 26.4% in 2023. Earnings per share are expected to come in at £1.93 in the fourth quarter, with full-year earnings per share up 2.8% to £7.51 per share.
Lloyd’s shares have been disappointing investors for most of the past year, dropping over 20% from its peak in February 2023. Concerns about economic growth in the UK have led investors to believe that the Bank of England could be making a mistake by keeping rates elevated for too long. Banks make higher interest income from higher rates, but this can also be bad news if it leads to a recession. That’s why Lloyds’ shares – as many of its peers – strengthened throughout the last few months of 2023 when markets started to price in the possibility of rate cuts on the back of falling inflation.
But with an uptick in CPI in recent readings and the realisation that the UK economy slipped into a technical recession in the second half of the year, concerns about growth are back on the table as the Bank of England failed to give any future guidance on when to expect rates to be cut at their meeting on February 1st.
Shares are up over 2% on Friday morning ahead of the release next week, but traders should be weary of increased resistance up ahead.
Lloyds Banking Group PLC will be releasing its earnings on Thursday the 22nd.
Past performance is not a reliable indicator of future results.
Barclays PLC
According to recent data from Reuters, Barclays’ net interest income is forecasted to have risen 20% in 2023 to £12,69m. Fourth-quarter revenue is expected to have dropped 5.4% from the previous quarter to £5,92m with full-year revenue up 2.3% to £25,51m. Full-year net income is expected to have shrunk 33% to £4,34m, whilst earnings per share are expected to have dropped 25% in 2023. Q4 earnings per share are expected to come in at £2.29, down 73% from the £8.46 delivered in Q3.
Barclay’s costs will be closely looked at as it goes through a restructuring whilst making targeted acquisitions. The bank’s fixed-income earnings will also be closely monitored after disappointing results in the US.
Barclays’ shares held up a little better during the pullback in January allowing the RSI to venture back into positive territory over the past few days. The momentum looks set to continue recovering on the upside over the coming days but a descending trendline is looming up ahead, placing resistance just below the £150 mark.
Barclays PLC will be releasing its earnings on Tuesday the 20th.
Past performance is not a reliable indicator of future results.
HSBC Holdings PLC
HSBC’s net interest income is forecasted to have risen 13% to £36,89m in 2023 with revenue estimated to have risen 19.8% to £66,3m. With expenses down on the year, the bank is looking to have almost doubled its net income to £25,45m. Earnings per share are forecasted to remain unchanged at £0.27 in the fourth quarter, with full-year EPS expected to have risen 44% to £1.28., according to data from Reuters
The Asia-focused bank is expected to have increased its pre-tax profit significantly in 2023 defying concerns about its exposure to China’s stagnating economy. However, stagnating rates in the last few months of 2023 have likely led to weaker fourth-quarter earnings as consumers demand better deals to attract their savings.
HSBC’s shares have held up significantly better in the last year, being down only 3% from the highs in February last year. The price has been consolidating within a sideways range over the past 6 months, giving traders ample opportunity but limiting the direction. The RSI has ventured into positive territory once again, but it is struggling to keep up with price, which could suggest some further weakness up ahead. For now, resistance remains steady at £663.
HSBC PLC will be releasing its earnings on Wednesday the 21st.
Past performance is not a reliable indicator of future results.
