Five FTSE 100-listed banks reported their third-quarter results this week, and on a pure share price performance Barclays PLC (LSE:BARC) and Lloyds Banking Group PLC (LSE:LLOY) were the winners over five days, only down 1.4% and 2.6% respectively.
But with the quintet reporting on different days, with Friday’s stock market confidence taking a big knock from a continued US big tech wobble, not to mention lenders’ varying market performances hitherto this year, their different exposure to financial markets and the UK or Asian economies, an exact comparison is tough.
So let’s look at the facts.
HSBC Holdings PLC (LSE:HSBA)
HSBC in short: Profit beat expectations, bad debt surprise due to China.
Profit before tax down 42% to US$3.5bn but better than consensus; adjusted PBT up 18% to US$6.5bn also better than expected.
Net interest income (NII) up 29.8% to US$8.6bn
Bad debt provisions US$1.1bn (27% above the consensus forecast, said UBS analysts, entirely driven by US$0.3bn of provisions for China real estate CRE and US$0.2bn for UK macro uncertainty)
Net interest margin (NIM) was stronger than expected for the quarter at 1.57%, up 12 basis points from 1.35% in the second quarter (now 1.39% for the year to date compared to 1.20% a year ago).
CET1 capital ratio 13.4%, up 2bps from 13.6% at the end of June and below the medium-term target range of 14% to 14.5%.
Outlook guidance for net interest income was upgraded for the current year (NII to US$32bn) but trimmed for 2023 (NII of at least US$36bn from US$37bn before, with provisions to be at the higher end of previous guidance), while there was also surprising/disappointing news that finance chief Ewen Stevenson is leaving.
Barclays PLC (LSE:BARC)
Barclays summary: Profits beat forecasts, strongest NIM of the five.
Reported PBT of £1,969m was 9% ahead of consensus. The UK arm’s PBT was also up 69% to £762mln.
NII up 20% in the quarter to £1.6bn, with the UK business and investment bank both better than expected.
Bad debt provisions £0.4bn from £0.1bn last year.
NIM 3.01% was up from 2.49% – up 12bps. On a nine-month basis it was up to 2.78% from 2.53% a year ago.
CET1 of 13.8% from 13.6% over the quarter and in line with the bank’s targeted range of 13-14%.
Outlook guidance was maintained.
Standard Chartered PLC (LSE:STAN)
StanChart summary: Strong profit beat, NIM lower than expected.
Reported PBT up 43% to US$1.4bn; adjusted PBT up 35% year-on-year to US$1.4bn, 26% above consensus forecasts.
NII up 19% to US$1.9bn.
Bad debt provisions of US$227mln.
NIM of 1.43% up from 1.35% – up 8bps on the quarter and 20bps on the year but lower than expected.
CET1 of 13.7% was down 2bps.
Outlook guidance for income upgraded to 13% growth while provisions/impairments are expected to be “slightly above” the year-to-date loan loss run rate of 18bps, which was not as bad as analysts had expected. For 2023 management now expect NIM of around 1.65%, better than previous guidance of 1.60%.
Lloyds Banking Group PLC (LSE:LLOY)
Lloyds summary: profits were worse than expected as provisions were higher, but underlying performance strong with NIM and capital levels higher and guidance lifted. Highest CET of the five.
Reported PBT slumped 26% on the year to £1.5bn, below forecasts; underlying PBT of £2.4bn was up 22% but 8% lower than consensus.
NII of £3.4bn for the quarter was up 19% on the year and 3% ahead of consensus.
Bad debt provisions of £668mln was much higher than expected due to more conservative assumptions about macro conditions.
NIM of 2.98% was up 11bps on the second quarter, 43bps on the year and ahead of expectations.
CET1 of 15.0% was up 3bps on the previous quarter, down from 17.3% at the start of the year but well ahead of the ongoing target of around 12.5% and slightly higher than expected.
Outlook guidance was lifted for NIM to at least 2.90%, operating costs are expected to be circa £8.8 billion, the asset quality ratio is now expected to be around 30 basis points and the return on tangible equity is expected to be about 13%.
NatWest Group PLC (LSE:NWG)
NatWest summary: profits confusing and CET disappointed but NIM beat forecasts.
Reported PBT of £187mln was down 82% and worse than forecast but that included a lot of one-offs, including from a withdrawal from Ireland and Ulster Bank losses. Adjusted PBT of £1.5bn for the remaining ‘go forward’ business was up 83% on the year but down 1.5% on the prior quarter, beating expectations.
NII of £2.6bn was up 41% on the year, better than expected.
Bad debt provisions of £242mln also bigger than City estimates.
NIM of 2.99% was 27bps higher than the second quarter and 71bps higher than a year ago and beating expectations.
CET1 was unchanged at 14.3%, which was below the analyst consensus.
Outlook guidance for income was upgraded to £12.8bn from £12.5bn even before any further increases in the base rate. For 2023, income is expected to grow further, costs to increase when they had been seen flat and impairments to increase to within the 20-30bps through-cycle range, having previously been below.
Analyst comments
UBS on Barclays: “Barclays' results show the benefits of possessing gearing to interest rates and trading businesses which generate higher income when conditions are volatile.
“Relative to peers, Barclays is overweight markets income, US credit and store card lending and US$ earnings. Only the last of these has been regarded by investors as a good thing in this environment, we think, though the de-rating of HSBC and StanChart proves this hasn't been a foolproof driver of performance. With CIB revenues tough to forecast and US$ strength not guaranteed to persist in 2023, we think it is key for Barclays to get its CET1 ratio towards the top of management's 13-14% range to drive buyback optionality - powerful when trading at 4x EPS - should CIB profitability continue to be sustained as we expect by higher market volatility and/or a recovery in primary activity volumes.”
Deutsche Bank on Lloyds: “Q3 results beat on pre-provision basis due to better NIM and the company has upgraded 2022 guidance. Impairment charges offset this but they are modelled charges and underlying asset quality remains robust. Lloyds is trading at 5.5x 2024E P/E.
“Lloyds' top line is benefitting substantially from the current rate environment. Going forward, we see only limited offsets to NIM expansion from lower expected growth, higher inflation and deteriorating asset quality. Our PBT estimates for 2022 are 3% lower due to the provision top-up but 7-9% higher in 2023/24. We reiterate our BUY recommendation and maintain our 64p price target.”
Shore Capital on NatWest: “NatWest is currently the highest rated of the major UK banks on a P/TNAV basis but that is reflective of its superior near-term RoTE outlook. On a standalone basis, NatWest still offers good value but we much prefer Barclays (Buy at 150p) at 0.5x TNAV for a 10%+ RoTE.”
RBC on HSBC: “We found it difficult to follow management's changes to guidance for FY23. FX makes it more complex, but we also think that the story was not well narrated ... Despite an 8% adj PBT beat vs consensus on the day and an upgrade to guidance, HSBC's share price underperformed on the day by c.8%. We think that this was driven by the following factors: (1) The CFO's departure was a surprise. He was in charge of costs, so there is now a worry that the bank could miss its 2% FY23 growth guidance. (2) The bank's CET1 ratio of 13.4% continues to be well below management's 14-14.5% target range. (3) Loan growth guidance was downgraded for FY23 from mid-single-digit to low-single-digit growth. (4) There was a Chinese CRE top-up, and there will likely be more to come, so there is downside risk to next year's cost of risk guidance of c.40bps. (5) HK NIM is likely to peak in Q4, so part of the interest rate sensitivity story - attractive for some investors - may fall away by year-end."
UBS on StanChart: “StanChart - as with HSBC - have managed pressure on CET1 from bond market moves well and benefited from strong Financial Market income. We expect double-digit ROTE into 2024 to combine with low RWA growth (an area where management has outperformed) to deliver substantial excess capital.
“Management targets US$5bn in payouts over 2022-2024, US$1.4bn announced to 1H22, 20% of mkt cap in distributions in the next two and a half years, underpinned by strong earnings growth, CET1 in the top half of management's target range and low impaired assets."