The FTSE 100’s banking heavyweights, Natwest, Barclays, Lloyds and HSBC are preparing for what pledges to be a compelling half-year reporting period.
Lloyds and Natwest will launch earnings on July 24 and July 25, with rivals Barclays, HSBC and Standard Chartered following the subsequent week, as reported by City AM.
The opening quarter was characterised by President Donald Trump’s White House comeback as trading revenues soared amid multiple investor withdrawals before ‘Liberation Day. ‘.
The administration’s tariff assault, which commenced at the start of the second quarter, caused banking shares to plummet.
The FTSE 350 banks index plunged to a trough of 4,700.7 during the upheaval, though commercial agreements and renewed investor sentiment have enabled it to climb more than 2,000 points beyond 6,100.
Credit provisions amongst banking behemoths increased in first-quarter filings, with HSBC elevating anticipated credit losses to $876m from $202m, whilst Barclays allocated £74m for “elevated US macroeconomic uncertainty”.
Nevertheless, analysts anticipate the Trump government’s trade strategy to have exerted reduced influence during the second quarter.
“Tariff risks feel much lower now, as the US administration has delayed most of their ‘Liberation Day’ tariffs, and it now appears that the US administration is using tariffs as a tool to negotiate with their trading partners,” analysts at the Bank of America said. They noted that UK domestic banks faced “reduced exposure to tariff risks” following the government’s trade agreement with the US in May.
Rates drop, margins squeezed
British banks have turned their attention to the Bank of England’s Monetary Policy Committee, with rate reductions poised to eat into their profits.
The FTSE 100’s Big Five banks secured record combined profits in 2024, exceeding £50bn as interest rates remained at post-financial crisis peaks during the year’s first half.
Nevertheless, the MPC has cut interest rates from 5.25 per cent highs to 4.25 per cent throughout the year, compelling lenders to broaden their income sources.
Bank of America analysts described the period as an “ok quarter” with underlying trends “broadly supportive” but cautioned about “some net interest income (NII) pressures”. .
Reduced NII volumes are anticipated for the quarter, after the first quarter enjoyed a boost in mortgages as Britons scrambled to meet the stamp duty deadline.
Chancellor Rachel Reeves altered zero rate thresholds for primary residences, which fell from £250k to £125k, whilst first-time buyer thresholds decreased from £425k to £300k from March 31. .
This sparked a mortgage lending boom with Natwest’s net customer loans rising £3.4bn to £371.9bn.
Natwest and Lloyds are expected to face the heaviest pressures owing to their domestic focus, compared to their counterparts.
A welcome surprise
While Net Interest Income (NII) is anticipated to be under pressure, analysts have suggested that “non-NII may have more potential to surprise positively, as volatility remained high in the quarter”.
Despite a more stable environment in the UK, trading income is still predicted to play a role in reports following the ‘Liberation Day’ bounce back.
Wall Street counterparts in The City saw an uptick in market income during the quarter.
JP Morgan reported a seven per cent increase in investment banking fees and a 15 per cent rise in equities trading revenue.
Jame Dimon, the head of the Wall Street giant, stated that investment banking activity “started slow” in the quarter due to the uncertainty surrounding Trump’s tariffs but picked up as markets rebounded.
Barclays, HSBC and Standard Chartered are also poised to benefit from strong inflows of wealth from Asia.
Asia has emerged as a key component of HSBC’s wealth management strategy – a sector the bank heavily invested in during the second quarter with a $4bn injection into its private credit arm.
In the meantime, Barclays has reignited its push into Asia’s private banking market, targeting ultra-high-net-worth clients and family offices in Singapore and India.
Standard Chartered’s finance chief, Diego De Giorgi, told Bloomberg television that wealth “flows have continued strongly during the past two months.”
Takeover talk
Merger and acquisition chatter intensified in the second quarter and reached fever pitch when Santander acquired TSB Bank.
Several lenders, including Barclays and NatWest, were reportedly vying for the high street unit.
NatWest was also said to have submitted an £11bn bid for Santander as the banking giant ramped up its deal-making activity following its return to privatisation.
Analysts at Bank of America suggested that “possible Barclays and Natwest could surprise on buybacks” if neither of their takeover bids proved successful, indicating that “more capital could come back via buybacks at the half year.”
Barclays is expected to initiate a £1.5bn share buyback, while NatWest may be poised for a £1bn buyback, according to analysts’ predictions.
Dark clouds
Despite what appears to be a stable quarter rounding off a robust half-year for lenders, looming challenges in the form of a landmark Supreme Court ruling and a potentially unsettling Autumn Budget are on the horizon for the second half of the year.
The Supreme Court is due to deliver its verdict on the motor finance scandal this month, a decision that could have significant implications for both Barclays and Lloyds.
Lloyds has earmarked £1.2bn for potential payouts, while Barclays could be liable for £90m.
Analysts have cautioned that total compensation claims for the sector could surpass £40bn if the ruling is unfavourable.
The Financial Conduct Authority has committed to a six-week redress scheme, which is anticipated to disclose the full extent of the impact on lenders within six weeks of the verdict.
Meanwhile, British banks face the prospect of nervously monitoring Autumn Budget tax increases as Rachel Reeves struggles to preserve her razor-thin fiscal wiggle room.
Experts warned: “The worsening fiscal position in the UK will likely raise questions around the possibility of bank taxes, potentially slower economic/volume growth in the case of more general tax rises which would compress household disposable income and corporate profitability.”
A confidential document authored by Angela Rayner prior to April’s Spring Statement disclosed that Prime Minister Sir Keir Starmer’s deputy had been advocating for a yearly £700m increase targeting the banking sector.
The Deputy Prime Minister suggested raising the bank surcharge to five per cent, which would essentially establish corporation tax for financial institutions at 30 per cent.
Industry representative UK Finance has expressed alarm that such measures would place Britain at a heightened competitive disadvantage against international banking rivals in nations offering considerably more favourable tax arrangements.
Research submitted by UK Finance before the Autumn Budget revealed the sector faces a combined tax burden of 45.8 per cent in London for 2024.
This significantly exceeded European competitors including Amsterdam (42 per cent), Frankfurt (38.6 per cent) and Dublin (28.8 per cent).
Bank of America analysts anticipate Reeves’ fiscal buffer, presently standing at £10bn, will contract by £20-30bn. As the Chancellor explores tax raising options this Autumn, banking leaders will be hoping that Rayner’s note remains simply a suggestion and not a blueprint.
