As might have been expected given the general strength of the global economy, the first quarter UK banking season was mostly positive, with recent market volatility giving something of a boost to those banks with trading operations. Generally benign conditions also fuelled an extension of loan growth, whilst capital cushions remained in rude health.
Less positively, the cost of legacy litigation issues remained a feature, whilst the fire of the PPI debacle has yet to be finally extinguished.
Lloyds Banking Group (LLOY)’s numbers provided much of what any bank should aspire to, with strong growth underpinned by a disciplined and organised balance sheet.
For the most part the update was impressive, with the potential for future growth becoming crystal clear. Unfortunately, the share price has not kept up with developments, having drifted 6% over the last year, as compared to a near 4% hike for the wider FTSE 100 (UKX).
There has also been some weakness over the last quarter as the shares lost nearly 7%, but an undemanding valuation coupled with measurable progress means that the general market view of the shares as a buy is likely to remain undisturbed.
At Barclays (BARC), the indelible stain left on its numbers by litigation and conduct issues masked the reasonable progress which it is making.
The update opened the debate on whether Barclays’ glass is half-full or half-empty. The initial mark down of the share price was somewhat inevitable given the bank’s overall loss, and it now stands down 3% over the last year, as compared to a 3.7% rise in the wider FTSE 100 over that period.
Of late, the shares have performed rather better, adding 10% in the last six months, but the next update should provide more clarity on the underlying situation. The market is not yet prepared to commit to the cause, with the general view of the shares as hold remaining intact.
RBS (RBS) continued to move away from its previous existence as something of a financial basket case, although the journey is far from over.
There remain three major hurdles to be cleared in the form of settlement of the US legacy issues once and for all, the removal of the UK government stake and the resumption of the dividend.
Although slightly weaker of late, the shares have risen 1% over the last year. The market consensus of the shares as a hold has shown an improvement from the negative stance previously taken, but until the larger issues are resolved, investors will continue to consider that there is better value elsewhere.
Given the strength of its competitors’ numbers in this reporting season, investors might have expected HSBC (HSBA) to round off events in some style, but unfortunately the bank missed the mark.
Expectations are always high for this banking behemoth and any disappointment tends to be pounced upon, as evidenced by the initial share price reaction.
Even so, over the last year the shares had added 12%, as compared to a 3.7% jump for the wider FTSE 100, and over two years the 62% rise is reflective of a bank whose fortunes have largely recovered.
With more pronounced growth elsewhere in the sector, however, the market consensus of the shares as a hold will remain difficult to nudge higher.
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