UK Banks in Focus

Can banks in the UK beat projections and show a strong recovery, or will there still be lingering effects from SVB and Credit Suisse that will make investors hesitant to boost stock prices?

A Lot of Moving Parts

The issues affecting UK banks are similar to those of the US but with a much higher inflationary environment. Investors will be focused on the overall direction of the economy, but also deposit movements and whether the rising interest rates help boost profits. UK banks dropped after reporting last quarter as the economic outlook kept provisions high. But banks outperformed the market in the two months that followed - only to be brought back into line by the banking crisis in the middle of March. The question for the major banks is if they managed to pick up deposits in a flight to safety similar to the US and what's the state of asset quality as the cost-of-living crisis squeezes borrowers.

Barclays Trading

In the particular case of Barclays, aside from the other issues already mentioned, investors will be looking at its investment banking operations. M&A has been muted with high-interest rates, but fixed-income trading could offset that. A compilation of analyst estimates by Barclays sees a profit of £1.45B with revenue of £6.79B, including £563M in provisions.

NatWest Credit Quality

While most of its profitability comes from high-street lending, investors expect NatWest to benefit from higher interest rates. Comments about the development of non-performing loans are likely to focus. The consensus sees NII rising to £2.96B, with pretax profits increasing to £1.57B. That's taken into account £250M in impairments, up from £144M taken last quarter.

Standard Chartered Takeover?

There were rumours that First Abu Dhabi Bank was looking to buy Standard Chartered, and earnings might be the time to put that to bed. Investors could be betting on improved performance supported by China, as well as a return on its investments in the Middle East with the higher oil prices. The consensus from analysts compiled by the bank itself sees an underlying profit of $1.47B on revenue of $4.41B, including $261M in impairments.

Barclays Retested Golden Pocket

Barclays may have ended a flag correction near £130 as prices received solid rejection by the golden pocket of the £80-220 leg. Bulls must hold their grip above the 50% of £145 to keep sentiment biased up, offering potential move to £160, £177 and the 2023 peak of £193 in the longer term. Losing the median support will expose the stock to £140 and the golden Fibonacci, with a break under opening the door to the £100 magnet zone.

Key Takeaways

UK banks report earnings this week. Investors will look at deposit movements, rising interest rates, asset quality, and credit quality. Barclays' investment banking operations and NatWest's profitability from high-street lending are of interest. Rumours of First Abu Dhabi Bank acquiring Standard Chartered, but improved performance and investments in China and the Middle East could boost the latter's performance.