Banks facing scrutiny over rate-fuelled profits
Britain’s biggest banks will report bumper combined first-half profits next week that may be likened to the benefits oil companies have enjoyed from external factors.
Lloyds Banking Group, Barclays and NatWest (trading as RBS north of the border) have seen profits surge on the back of interest rate rises rather than core growth, just as energy firms have seen earnings boosted by wholesale prices.
The banks have been quick to ramp up lending rates, but have been criticised for not passing on rate rises to savers.
Lloyds kicks off the half-year results season on Wednesday with City analysts forecasting a 9% increase in pre-tax profits to almost £4 billion from £3.6bn.
Its net interest margin — the difference between what it pays to depositors and charges on loans — is expected to have climbed to 3.16% in the six months to the end of June, from 2.77% a year earlier.
Barclays is expected to post a by a 20% jump in profits to £4.5bn, while NatWest is expected to come in the highest with a 29% rise to about £3.4bn, though the second quarter figure is likely to come in at £1.7bn, down from £2bn a year ago.
However, NatWest’s earnings are likely to be overshadowed by the contorversy around the decision bym its Coutts private banking division to cancel Nigel Farage’s account because it believed the Brexiteer’s views “were at odds with our position as an inclusive organisation”. NatWest CEO Dame Alison Rose has written to him to apologise.
The banking sector’s shares are up around 7% year to date, to rank 13th out of the 39 industrial groupings which comprise the FTSE 350, but that all comes from HSBC and Standard Chartered, which are up, whereas the other three are down.
Lloyds’ shares have traded in a wide range over the last twelve months but overall they are almost unchanged on where they were a year ago.
A triple-header of central bank policy decisions is due that will further establish the pattern of interest rates. The US Federal Reserve is first up on Wednesday, followed a day later by the European Central Bank and the Bank of Japan on Friday.
Danni Hewson, head of financial analysis at AJ Bell says the US Federal Reserve pleased financial markets with a pause in its rapid series of interest rate hikes at June’s meeting, but the Federal Open Markets Committee laid the groundwork for an increase at this one.
“As a result, markets are putting a 99.8% chance on a quarter-point increase to 5.50%, meaning it’s near enough bolted on,” she says.
At its last meeting, the European Central Bank increased its main refinancing rate by one-quarter of a percentage point to 4% and president Christine Lagarde suggested there would be more to come. The Bank of Japan remains the outlier. Inflation is 3.5%, ahead of the 2% target, but not as uncomfortable as it is in Europe, the USA or UK.
Monday 24 July
- First-half results from Moneysupermarket.com
- Trading statements from Vodafone and Cranswick
- Flash purchasing managers’ indices (PMIs) for manufacturing from Asia, the EU, UK and USA
- In Europe, quarterly results from Ryanair
Tuesday 25 July
- Full-year results from Games Workshop
- First-half results from Unilever, Croda and Unite
- Trading statements from Mitie and Paragon Banking
Wednesday 26 July
- First-half results from Lloyds Banking Group, Rio Tinto, British American Tobacco, Reckitt Benckiser, Centamin and Breedon
- Trading statements from Fresnillo
Thursday 27 July
- First-half results from Barclays, Shell, RELX, Anglo American, Barclays, Rentokil Initial, Informa, SEGRO, Centrica, Hammerson, Inchcape, Vesuvius and Morgan Advanced Materials
- Trading statements from BT, Airtel Africa, Beazley, RS Group and Britvic
Friday 28 July
- First-half results from NatWest, Standard Chartered, International Consolidated Airlines and Rightmove