Britain’s big banks report first-quarter numbers this week and the mood is likely to be a lot less celebratory than the last set of bumper numbers with big profit falls forecast all around.
Rising interest rates are a tailwind, given the lag in adjusting mortgage and loan rates and savings, but other issues are building especially the squeeze on household spending, rising insolvencies and the end of the write-back of bad debt provisions.
Mortgage demand will be in focus when Lloyds Banking Group PLC (LSE:LLOY) and NatWest Group PLC (LSE:NWG) update on Wednesday and Friday respectively.
Both will benefit from rising interest rates but competition in UK mortgages is ferocious and the worries over the domestic economy will quickly be reflected in loan demand and possible bad debts.
Consensus is for Lloyds to announce first-quarter profits of £1.43bn, down 25% and NatWest around £873mln, down 5%.
Don’t expect too much news on hand-outs either, Shore Cap adds, as it is the half-year and annual statements when the banks tend to make the big payout announcements, says the broker.
Staff costs are also rising and the report this week of Goldman's UK bankers earning £350,000 in bonuses underlines the pressure, though this will affect Barclays PLC (LSE:BARC) and HSBC Holdings PLC (LSE:HSBA) more than the more domestic-focused Lloyds Banking Group PLC (LSE:LLOY) and NatWest Group PLC (LSE:NWG).
HSBC gets the ball rolling on Tuesday (26 April) and UBS expects soft wealth management revenues given the recent Covid restrictions in Hong Kong.
The pivot towards Asia and away from the UK and Europe is an ongoing theme, while costs will also be an issue to watch.
Consensus predictions are for profits of US$3.72bn, down by 36% on a year ago.
Barclays (Thurs 28 April) is the pick of the bunch, according to Shore Capital, though this is largely down to recent share price weakness.
That reflects worries over its investment banking exposure. Expect first-quarter profits of about £1.32bn, down 45%, says the consensus.