Banking results season is over for another three months or so and it is time to play the stock market equivalent of “snog, marry, avoid”.
Generally, financial advisors suggest you should never fall in love with or become married to your investments, so the verdicts on all of these banks should be either “snog” or “avoid” but I am working on the basis that the verdicts given below are not entirely serious and should not be construed as investment advice.
China crisis
HSBC PLC was the first to report, on Tuesday, and set a low bar for the others to hurdle.
It revealed a 25% decline in profits in the first quarter as greater inflationary pressures following Russia’s invasion of Ukraine led it to prepare for higher levels of bad loans.
Just as we had become used to banks releasing funds set aside to cover potential bad loans as the economy emerged from the doubt and uncertainty of the pandemic, we now apparently have to get used to bad debts being a concern.
Not that the pandemic has stopped being a concern for HSBC; thanks to the resurgence of cases in China, around half of its branches in Greater China have been temporarily shut.
Verdict: avoid
Bad news for gym owners and streaming services
Lloyds Banking Group PLC (LSE:LLOY) enhanced its guidance for the year on Wednesday following what it described as a solid first quarter – a period in which underlying profits grew by 26% to £2bn.
Not that it got much credit for it, in terms of share price movement.
While the tenor of the statement was reasonably upbeat, chief executive Charlie Nunn struck a cautious note against a backdrop of rising prices and the conflict in Ukraine.
The bank is a very different beast to HSBC, being entirely UK focused and thanks to its ownership of the Halifax brand, a big player in the mortgage market.
It is clear – from statements by the likes of Sainsbury and Unilever – that people in the UK are really starting to feel the pinch. Sainsbury’s said customers are counting every penny and every pound while Lloyds reported that its customers are cutting back on expensive non-essentials, such as gym membership and video streaming contracts.
The bank set £177mln aside to cover potentially bad loans.
Verdict: Snog.
Banking on a spanking
Barclays PLC (LSE:BARC), like HSBC with its branch closures because of the Covid-19 upsurge in China, had its own particular cross to bear; in Barclays’ case, it was the embarrassing foul-up on the loan book front, which has caused its share buyback to be delayed for a second time.
The bank initially suspended its £1bn buyback programme in March for three months after it inadvertently sold more securities than it had on its books, requiring the bank to buy back the “phantom” securities.
Now the US Securities Exchange Commission is sniffing around, checking out that Barclays’ procedures are all ship-shape and Bristol fashion.
The bank’s expression of concern about potential loan defaults was very much on theme, however – although as we’ll see further down the page, not all banks increased their impairment provisions.
Barclays set aside an additional £141mln to cover potential defaults on loans, which was at least lower than the £299mln analysts had forecast and much lower than the £500mln or so it has earmarked to extricate itself from the “phantom” securities mess.
The war in Ukraine, rising inflation and the potential resurgence of Covid cases were all issues identified by Barclays’ peers as concerns.
None of the banks was too keen to emphasise that when the Bank of England increases interest rates to tame inflation, all of them should see their margins improve as a result.
Verdict: Avoid.
Who's afraid of rising interest rates?
Finally, we come to NatWest Group PLC (LSE:NWG), now no longer majority-owned by the UK taxpayer.
It was less shy than some of its peers about trumpeting the beneficial effects of rising interest rates on its business.
It reported a much-increased profit in the first quarter and, with interest rates rising, said it expects income this year to be “comfortably” above its previous guidance.
The lender made £841mln of attributable profit in the first three months of 2022, up 35% on the first quarter of 2021 and well ahead of the £755mln average analyst forecast.
NatWest also mentioned the word “impairment” in its results, only in its case it is releasing money set aside, although this was mostly relating to the Ulster Bank business and other discontinued operations.
All of the lenders bigged up their concerns for customers who are struggling with bills; close your eyes and you can almost believe we are in the era of concerned bank managers rather than heartless algorithms.
NatWest said it has already referred more than 2,000 customers to debt experts at Citizens Advice, so although it may not have set aside extra money for bad debts, it sounds like some provisions of that sort could be on the way.
Verdict: Marry