UK Banks Earnings Preview: HSBC; Barclays; Lloyds

[MongiIG]

It's the start of a busy week for UK banks, which kicked off their reporting season last week with Standard Chartered and Natwest.

 

Daniela Sabin Hathorn | Presenter and Analyst, London | Publication date: Monday 21 February 2022 

NatWest, which reported on Friday last week, generated profits of £4 billion in 2021 after suffering a £351 million loss the year before. But its shares failed to capitalise on the optimistic tone, ending the day lower by 2.5%, meaning there is some extra pressure on the shares of the banks reporting this week as expectations are very high. The prospects of higher rates in the next few months is the key focus of profit-generation in the next year, but investors are wanting to see more from the earnings reports after a strong performance from shares of UK banks in 2021.

 

HSBC stands out because it has greater exposure to Asia. A good comparison for HSBC's business is Standard Chartared, which reported earnings on Thursday last week, and has seen its shares rise almost 5% since the bank released its fourth quarter earnings, despite income and earnings coming in below expectations. That was because its net interest margin was higher than expected and it announced a new buyback and dividend, coupled with a forward guidance focused primarily on the expectations of increased lending on the back of higher interest rates. The net interest margin is going to be closely-watched in the upcoming release.

 

Technically, there is a divergence in RSI, with lower highs clashing with higher highs on the chart, signalling a bearish reversal in play. Because of this, we could see a pullback to the 50-day SMA (499.6), which was support seen back in January. On the upside, the RSI is still bullish, and moving averages are stacked positively, but we need to see a break above previous resistance at 5.67 for further bullish consolidation.

 

Barclays and Lloyds are also expected to produce a strong earnings report, boosted by much lower charges for bad debts as borrower defaults proved lower than feared, allowing major players to release the billions set aside for this in 2020. But both these banks are more geared towards the UK, and with their charts bearing close resemblance to Natwest, we could see the recent bearish pressure continue to bring the share prices down despite the potential for better than expected earnings