Britain’s major banks are preparing to report their progress in the first six months of the year amid expectations that they will be hit by more bills for payment protection insurance (PPI) and will need to top up the amount they have set aside for fines and other penalties.
Two of the banks that will be subject to particular scrutiny are Barclays andStandard Chartered – which are both in the middle of boardroom upheaval.
Barclays is without a chief executive after Antony Jenkins was ousted two weeks ago and with chairman John McFarlane temporarily taking the helm, analysts are on alert for changes to the strategy. At Standard Chartered, the former investment banker Bill Winters will make his first presentation since replacing Peter Sands in June. Analysts are awaiting Winters’s views on the need for a cash call.
Bailed-out Lloyds Banking Group and Royal Bank of Scotland face their own issues. Lloyds is expected to set aside another £1bn provision for PPI mis-selling. RBS is likely to add to the £2bn it has already set aside to cover penalties for the way it packaged up mortgage bonds before the financial crisis.
HSBC’s bosses will be braced for questions about whether George Osborne has done enough to stop them shifting the bank’s headquarters away from London, where it has been based since 1992. The chancellor used his first fully Conservative budget earlier this month to soften the bank levy on balance sheets which HSBC had opposed and to introduce a new 8% tax on bank profits. The so-called challenger banks now face a hit. TSB last week called for the tax to kick in at £250m rather than £25m, while Virgin Money, which publishes its figures on Tuesday, will face questions about the implications of the new tax on its prospects.
The sudden ousting of Jenkins and the installation of new chairman McFarlane at the helm means that expectations of drastic cost-cutting measures, job losses and an overhaul of the investment bank have been raised in advance of the half-year numbers on Wednesday.
When he stepped into the top role, albeit temporarily, McFarlane insisted that a new strategy is not being envisaged. Even so, he said there would be a new plan for the investment bank, which had been the focus of cost-cutting under Jenkins as he responded to pressure to rein in big bonuses.
McFarlane has told staff he aims to double the Barclays share price in three yearsas he puts renewed focus on growth and more aggression into lending on credit cards and mortgages. Analysts may seek clues as to the risks this will entail: “We expect the executive chairman to focus on execution rather than a radical strategy rethink,” said analysts at Morgan Stanley.
The 79% taxpayer-owned bank has not turned in a full-year profit since its £45bn bailout in 2008 and the share price has remained stubbornly below the 502p average price at which the government breaks even on its stake. However, the chancellor has signalled that he is ready to start selling off the shares, even at a loss. That symbolic moment could come after the results, which are likely to show that making a profit is still tough. Some analysts are pencilling in a “small net profit”.
Ross McEwan, the chief executive, has warned that the bank still faces a turbulent ride while it awaits the outcome of a long-running case brought by the Federal Housing Finance Agency in the US about the way it packaged up mortgage bonds before the 2007 crisis. While the bank has set aside £2bn, there have been estimates that the bill could be at least three times that sum.
Friday: Lloyds Banking Group
Payment protection insurance provisions are once again likely to weigh down Lloyds Banking Group’s half-year profits. Analysts at Morgan Stanley are forecasting that the cost of settling the PPI scandal will rise by another £1bn – implying that the total bill will break through £13bn.
In its first-quarter results, Lloyds said that complaint volumes were 11% down on the same time last year but still running slightly higher than expected – so the amount set aside to pay out compensation and the associated administrative costs could rise again.
“Our remaining £1.7bn provision continues to represent the group’s best estimate of total future costs but a number of risks and uncertainties remain, in particular the total expected future complaint volumes,” the bank said three months ago.
The bank’s boss, António Horta-Osório, will provide an update on his aim of making Lloyds a “normal” bank. The government’s stake, which stood at 43% following the bank bailouts in 2008, has now dropped to below 15%. Osborne has promised a sweetened retail offering of the shares – making them attractive to small investors – but this seems unlikely until after the full-year results in February.
Monday 3 August: HSBC
Britain’s biggest bank announced plans to axe 25,000 jobs from its global workforce of 257,000 in June to cut costs and bolster returns to shareholders. Stuart Gulliver, the chief executive, has said a decision on whether to remain headquartered in the UK will not be made until the end of the year, but that won’t stop speculation about whether a move back to Hong Kong is still on the agenda. “This could be HSBC’s final set of numbers before its potential ‘escape’ from the UK is resolved. For the sake of its shareholders, we certainly hope so,” said Ian Gordon, analyst at Investec.
The bank could also say whether the Midland name will be revived in the UK as HSBC responds to the “ringfencing rules” recommended by Sir John Vickers which mean retail bank operations must be run separately from riskier investment banking business. HSBC is setting up a new HQ for its high street bank in Birmingham, and it is likely to be renamed.
The bank will unveil its results at 5am as HSBC is putting out its numbers at lunchtime in Hong Kong rather than waiting for the stock market there to close. Despite the plunge in the Chinese stock market and fears of a slowdown in the economy, analysts expect HSBC to report strong progress in the world’s second-biggest economy.
5 August: Standard Chartered
This will be the first public appearance by the new boss Winters. He took over in June from Sands, who had been one of the few bank bosses to survive the 2008 crisis. Winters, a former investment banker, is facing questions about whether the emerging markets-focused bank has enough capital, whether it needs a cash call on investors and how it might return to growth. Analysts at Barclays said: “The new CEO’s initial priority must be restoring confidence in the balance sheet and we continue to see a $5bn provision write down and $5bn (£3bn) capital raise as likely.”
The analysts do not expect the results “to be particularly encouraging with revenues likely to still be under pressure, credit quality another area of concern and little capital progression likely”.
“Any comments on the future size, shape and returns of the business are likely to be more important than performance,” they added.