Royal Bank of Scotland Group plc’s (LON:RBS) eye-watering annual loss today wraps up a mixed bag of results from the UK’s biggest lenders this week.
At the bottom of the pack, RBS reported a full year loss of £6.95bn, worse than analysts’ expectations of £6.1bn and compared to a loss of £1.97bn in the year-ago period. It marked the bank’s ninth consecutive loss, reflecting charges for litigation, conduct and restructuring.
On the opposite end of the scale, Lloyds Banking Group plc (LON:LLOY) on Wednesday reported its highest full year pre-tax profit in a decade with a statutory pre-tax profit of £4.2bn as payment protection insurance provisions (PPI) were slashed. It was more than double the £1.6bn recorded a year earlier albeit slightly below market forecast of £4.4bn.
The lender also pleased investors with a 13% increase in the total ordinary dividend to 2.55p per share and a special dividend of 0.5p.
At the middle of the road was Barclays plc (LON:BARC) and HSBC Holdings (LON:HSBA).
Barclays on Thursday posted pre-tax profit of £3.2bn, almost tripling from £1.2bn the prior year but below the consensus forecast of £3.9bn.
The results were supported by an increase in pre-tax profits in its core UK and US businesses by 4% to £6.5mln.
The key takeaways from the group’s results were its improved capital position and the decision to bring forward the closure of non-core units by six months to 30 June.
Meanwhile, HSBC disappointed with its full year earnings on Tuesday. Pre-tax profit of $7.1bn was down from $18.9bn the prior year and worse than expectations of $14.4bn.
The bank blamed a $3.2bn impairment of goodwill in the company’s global private banking business in Europe and the impact of the sale of its operations in Brazil.
Summarising the week’s results, Wilson King Investment Management’s head of research, Richard Hunter, said Lloyds was at the “top of the tree” while RBS was the worst of the bunch.
However, even though Lloyds impressed, Hunter said investors need to be wary of its exposure to the UK economy amid uncertainties surrounding the Brexit vote. “It sounds like it’s going to be a fairly messy divorce,” he said on the UK’s exit from the European Union.
The bank’s chief executive Antonio Horta-Osorio cautioned at the presentation of the results that the bank’s performance was closely tied with the UK economy, where 97% of its business is focused.
Still, the bank believes its strong capital position puts it in good stead to withstand any headwinds. The common tier 1 equity ratio rose to 12.4% in 2016 from 11.4% in 2015.
Meanwhile, Goldman Sachs is worried the mortgage book isn’t shrinking as quickly as predicted and reiterated a ‘sell’ rating on the stock. The open mortgage book was £1.1 bn in the second half of 2016, compared to £3.4bn in the first half.
“From our perspective, the key unknown from these results is whether they represent the first sign of a U-turn in Lloyds’ mortgage strategy: previously the group had prioritised margin maintenance and the size of its open mortgage book eroded slowly as a consequence,” Goldman said.
Separately, Goldman said it expects HSBC will return some $3.5bn of spare cash via share buybacks this year after the bank said it will spend a further $1bn on the re-purchase programme.
Despite the largely negatively interpreted results, Goldman thinks the Hong Kong and London-based giant is growing at a fast enough pace to mitigate the effects of the head-winds it is facing.
“[The] fourth-quarter results show encouraging signs for loan growth in both Hong Kong and the UK mortgage business,” the Wall Street giant said.
On RBS, Hunter said the lender published some “pretty ugly” numbers and has several obstacles to overcome before it can return to a profit and resume dividends. There is also the issue of what happens with the government’s 72% stake, he said.
RBS expects to return to profit in 2018 as it targets £750mln of cost savings this year. A return to profit, however, will be subject to clearing remaining legacy issues, including the bank’s US litigation over the way it packaged and sold mortgage backed securities (RMBS).
The bank also believes its proposal to shelve its sale of the Williams & Glyn branches and instead set up a fund for challenger banks will remove uncertainty and put it back on the path to restarting dividend payments.
The European Commission will need to approve the proposal and comes at an inopportune time as the government is just weeks away from triggering Article 50 of the formal Brexit process.
The Commission had required the sale of the branches as a condition of its 2008 and RBS was only able to pay a dividend once it separated Williams & Glyn.
Laith Khalaf, senior analyst at Hargreaves Lansdown said: “RBS is still paying for the sins of the past, though the bank is now saying that 2017 is going to be its last year in purgatory, and that shareholders can look forward to a brighter, more profitable year in 2018.
“That may well be the case, there is a decent bank inside RBS struggling to get out, but it’s those ‘one-off items’ which pop up with such alarming regularity which keep pushing the bank deep into the red.”
On Barclays, Hunter said the performance of its investment bank was impressive but it still continued to lag behind its US counterparts.
The Barclays’ international unit, which includes its investment bank, increased pre-tax profits to £4.1bn from £2.3bn, boosted by a 9% increase in revenue to £15bn.
Hunter added that the closure of non-core units improves the outlook for Barclays and while the cut to the dividend was “disappointing”, the 2016 results were “all in all a good set of figures”.
Barclays lowered its dividend to 3.0p per share from 6.5p the previous year as it continued its restructuring.
Looking across all the banks' full year results, Hunter concluded: “Overall, slightly disappointment figures from HSBC , RBS unfortunately no surprises there, Barclays is beginning to become more streamlined and even Lloyds at the top of the tree we just need to bear in mind its exposure to the UK economy.”
As to whether any of the lenders present an attractive investment opportunity, he said it “depends on your attitude to risk” as the outlook for all four of the banks remains unclear.