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UK and European banks limped in Q3

Summary

UK and European megabanks are set to report more lacklustre growth.

‘Lost’ year for growth

Shares of the biggest-listed UK banks by market capitalization are having a terrible year. Royal Bank of Scotland is the best performer but was down some 17% since the beginning of January by Tuesday afternoon. Standard Chartered is faring the worst, nursing a 32% loss after its own struggle for sustainable growth was compounded by fresh regulatory scrutiny in Africa. A challenging year in geopolitics has stemmed halting attempts by lenders to build on progress in leaving legacy conduct and capital issues behind in recent quarters. This applies to banks in most parts of the world, but most obviously to dominant lenders in Europe.

Mediocre trading

Hopes that investment businesses, including trading, would see a new era of profitability have been dashed again after another mixed, though mostly lacklustre, performance by giant U.S. rivals like JPMorgan, Goldman, Morgan Stanley and Citigroup, and Bank of America. Whilst equities trading revenue rose 7% on average in the three months to September for that group, even the most solid, including the largest U.S. bank by assets, JPMorgan, contributed to a 3% average slide in their broader market operations known as FICC, which trades fixed-income, commodities and currencies. UBS, which has the most exposure to equities, and reports on 25th October, would see revenues from share trading rise little more than 2% year-on-year, if Wall Street banks’ performance was replicated in Europe. Barclays, which has a smaller stock market operation would see less benefit. Lloyds and RBS have negligible remaining exposure to markets. With little evident growth elsewhere across large lenders, they will continue to rely on increasing efficiencies to safeguard all important returns on equity. As investors in big U.S. banks know however, the market is fickle about rewarding banks for—essentially—cutting costs. Despite top and bottom-line beats at most of the lenders named above, almost all saw their shares fall immediately after results. Stock market reactions to European bank reports will be compounded by current jittery sentiment, making it even less likely shares will benefit from quarterly results.



Barclays reports quarterly earnings on Wednesday. Earnings per share are forecast to rise 13% to 4p and revenue to fall 1.8% on the year to £5.08bn. HSBC reports quarterly earnings (in dollars) on 29th October. EPS is seen at $0.20 with revenues largely flat at $14bn. Lloyds Banking Group and RBS will report interim updates on 25th and 26th respectively.  Lloyds’s third quarter underlying pre-tax profit is forecast at £1.78bn, 14% lower than the same quarter a year before. RBS’s core earnings, known as earnings before interest and tax (EBIT), are expected to come in 3.75% lower to £1.33bn in the third quarter.


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