With the costliest UK banking scandal fading into memory, a Brexit deal looking more plausible than it once did and trading likely to surprise on the upside, British lenders are going into earnings season with the wind in their sails for once.
That doesn’t mean the numbers won’t have ugly spots. Third-quarter results, which kick off this week, are expected to show damage from the most recent casualty in corporate Britain — Thomas Cook Group — and a stretched consumer that’s pulled back in the run-up to Brexit.
That’s likely to be most negative for the two big domestically-focused lenders, Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc. Rock-bottom interest rates don’t help either.
Then, there are the unexpectedly massive final charges for mis-sold payment protection insurance. However, banks disclosed most of the damage in the days after the August 29 deadline for customers to claim redress, and it’s likely priced into their stocks.
And in a positive omen for Barclays Plc, many of Wall Street’s trading giants posted better-than-expected revenue from equities and fixed income — but Jes Staley’s British investment-banking flagship will have to show expenses are under control.
“Net interest margin pressures and shrinking interest income revenues, coupled with stagnant non-interest income, remain the key challenges
for UK banks,” said Jonathan Tyce, an analyst at Bloomberg Intelligence.
“The obvious solution continues to be further cost cutting.”
The sudden geopolitical crisis facing HSBC Holdings Plc and Standard Chartered Plc in 2019 was not Brexit, but the unrest in Hong Kong.
For both Asian-focused lenders, the territory is their biggest single market.
The banks have both played down the financial impact of the protests, and have also sought to assuage concerns that the wider US-China trade war has had on their businesses. Standard Chartered CEO Bill Winters will also be hoping to show further progress in cutting costs.
All of the banks have repeatedly said they are ready for any Brexit scenario, and some have taken provisions to prepare for a surge in bad loans in the event of a departure without a deal. However, an official in UK Prime Minister Boris Johnson’s office
has said if the European Union agreed to a request from the British Parliament that Brexit be delayed until January 31, then the prime minister would call an election instead.
David Herro, chief investment officer for international equities at Harris Associates in Chicago, holds shares of UK banks. “Any deal is better than no deal” for those lenders, he said on Bloomberg Television.
Some of the damage is already done, though.