Archived article

Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

Updated views on Barclays, Standard Chartered, Lloyds, HSBC and RBS
Thursday 02 Mar 2017 Author: Tom Sieber

We have produced a snapshot of the latest set of results from the main London-listed banks to help you navigate the sector.

In this article we discuss the most important figures, management outlook, how investors reacted and our current view on each investment case.


 

Barclays (BARC) 225.7p

Results: 23 February

BARC - Comparison Line Chart (Rebased to first)

What did we learn?

Barclays is better capitalised than many had feared with a core capital ratio of 12.4% against an expected 11.8%. The company also revealed plans for an accelerated divestment of its non-core assets (the so-called bad bank).

Profit more than trebled in 2016 to £3.2bn but the company was still short of expectations for nearly £4bn. Management remain cautious with no plans to increase the dividend at present.

How did the shares react?

Up 3% when the results were first announced but quickly reversing gains as investors fully digested the numbers and the downbeat tone of management.

What is our view now?

Like several of its peers, Barclays has risen sharply from the lows seen in the wake of the Brexit vote. We see little scope for further upside.


Standard Chartered (STAN) 725p

Results: 24 February

STAN - Comparison Line Chart (Rebased to first)

 

What did we learn? 

After posting the first loss in more than 25 years in 2015, the company crept back into profit in 2016. There is little prospect of the dividend being restored in the near-term.

Profit excluding one-off items came in at $1.1bn against expectations for $1.4bn with its SCPE private equity unit proving particularly troublesome.

How did the shares react? 

The shares sank, reflecting a more negative market mood towards the sector and its own worse-than-expected performance.

What is our view now? 

In theory, a recovering Standard Chartered could provide an interesting way of playing emerging markets resurgence. In reality, there are just too many uncertainties to warrant investing in this stock.


 

Lloyds Banking (LLOY) 69.7p

Results: 22 February

LLOY - Comparison Line Chart (Rebased to first)

What did we learn? 

Pre-tax profit for 2016 was up 158% to £4.24 billion, a level not seen since 2006. Overall the results were better than expected and guidance for 2017 suggests consensus forecasts on forward earnings and dividends may also be too conservative. The Government also cut its holding from 5% to less than 4% in the wake of the results.

How did the shares react? 

They topped the FTSE 100 leaderboard on the day as investors lapped up the big increase in profit and positive outlook. The shares have subsequently given back some of those gains amid broader weakness in the sector.

What is our view now?

It’s a good performance but we want to see more in order to get excited. Chief executive Antonio Horta Osorio has done a great job of turning the business around but we are a little nervous of the £1.9bn deal to acquire MBNA’s consumer credit card business at a point in the economic cycle where bad debts could be about to rise.


HSBC (HSBA) 649.4p

Results: 21 February

HSBA - Comparison Line Chart (Rebased to first)

What did we learn? 

In the words of Shore Capital analyst Gary Greenwood, HSBC is a stock ‘the market appears to have (wrongly) assumed is a one way bet on rising US rates’.

The results revealed a 62% year-on-year decline in 2016 profit thanks to several one-off items. The $7.1 billion figure was a long way short of the $14 billion expected by analysts.

Recent top-line trends do not look too encouraging either with $11 billion of revenue in the fourth quarter against the $12.3 billion consensus forecast. Management also pointed to several near-term headwinds including forex movements and lower UK interest rates.

How did the shares react? 

Not well. Having endured a sharp fall in the aftermath of the results the shares are now down 8.5% on their pre-results level.

What is our view now?

We’re not the biggest fans of banking stocks full stop; however, HSBC is perhaps one of the more interesting of the bunch. Assuming the company can maintain dividend payments it could interest income investors on a 6% prospective yield.


Royal Bank of Scotland (RBS) 234.9p

Results: 24 February

RBS - Comparison Line Chart (Rebased to first)

What did we learn?

RBS, unlike Lloyds, is still miles away from repairing the damage wrought by its own failings and the financial crisis.

A 2016 loss of £7bn is more than three times as large as the £2bn posted in 2015 thanks to ongoing legal action in the US and an abandoned effort to sell its Williams & Glyn business. Guidance is for a return to profitability in 2018. Investors will only believe it when they see it.

How did the shares react?

They retreated but perhaps not by as much as you might have feared given the scale of the losses. The market clearly had low expectations.

What is our view now?

We reported how the shift in strategy with regards to Williams & Glyn could speed up the return of dividend payments but performance remains too poor for us to suggest considering this as an investment. The Government’s 72% stake is an unhelpful overhang. (TS)

‹ Previous2017-03-02Next ›