UK banks will face the brunt of the economic damage done by the coronavirus. Can the Bank of England’s emergency measures really help Lloyds [LLOY], RBS [RBS], Barclays [BARC] and HSBC’s [HSBA] share prices?
Last week coronavirus-mayhem engulfed the markets, seeing the share prices of the UK’s four big banks, namely Lloyds, RBS, Barclays and HSBC, all experiencing substantial losses.
Tuesday saw the Bank of England’s Monetary Policy Committee (MPC) announce it was cutting interest rates to 0.25%, but would provide an extra £190 billion to help banks keep lending - measures designed to minimise economic damage that could see employees lose their jobs and businesses run out of money. That same day, the Chancellor of the Exchequer, Rishi Sunak, unveiled an expansive infrastructure program in his maiden budget to stimulate the economy.
Amount provided by the Bank of England’s Monetary Policy Committee (MPC) to help banks keep lending
While the share prices of Lloyds, RBS, Barclays and HSBC briefly rallied on the news, they promptly crashed on Wednesday as stock markets around the world experienced their worst trading day since Black Friday in 1987.
In such a climate, will the BoE’s monetary policy help the ailing share prices of Lloyds, HSBC, RBS and Barclays? Or will they feel the full brunt of the coronavirus outbreak?
Lloyds share price
What's happening with Lloyds’ share price?
Lloyds’ share price has plunged over 36% this month following the outbreak. In theory, the emergency cut and extra cash should make it easier for banks to lend. As the UK’s biggest mortgage provider, this should also provide Lloyds with a buffer if cash strapped customers find it difficult to make repayments on their mortgage in the coming months.
What now for Lloyds?
In practice, the economy is experiencing its lowest rate of growth since 2009. And this doesn't even take into account the effects of coronavirus. Lloyds’ status as a bellwether of the UK economy means it could find itself in a tight spot, especially if the outbreak triggers a global recession.
RBS share price
What's happening with RBS’ share price?
Royal Bank of Scotland's share price spiked 3.5% following the MPC's announcement. Yet it's now back in freefall, having plummeted over 36% over the past month.
Like other banks, the taxpayer-owned RBS has agreed to let coronavirus-affected customers delay mortgage and loan repayments for 3 months. The BoE’s cash injection should help, especially with mortgage payments - RBS is the UK’s third biggest lender.
Where now for RBS?
The coronavirus has hit RBS with a double-whammy. Not only was it caught up in last week’s market rout but now the government is having to delay unloading its shares in the bank. The Treasury had been looking to sell its 62% stake in RBS this year. However, with RBS's share price in the doldrums Chancellor Sunak has decided to wait until at least 2024-2025. Shareholders and traders will be hoping things will have recovered by then.
Barclays share price
What's happening with Barclays’ share price
Barclays’ share price is down 41% over the month and is trading at levels not seen since 2009.
What now for Barclays?
Last year Barclays’ income increased by just 2%, so the economic hit from the coronavirus on its different businesses could have severe consequences. Barclays will be hoping that efforts to reduce expenses will reduce potential losses, including the closure of its Leeds site.
Yet, Royston Wild writing on Motley Fool argues that Barclays is a buy right now. Wild points to Barclay's 6X forward price-to-earnings ratio, something he describes as being in ‘bargain basement’ territory.
HSBC share price
What's happening with HSBC’s share price
HSBC's share price has crashed over 20%, which is at least better than the UK’s other big banks.
What now for HSBC?
China is one of HSBC's biggest markets and a strategic priority. The country's quarantine measures have seen the novel coronavirus practically wiped out. Arguably this will give shareholders confidence that China can bounce back relatively quickly, helping HSBC’s share price in the process.
This month the bank made Mark Wang its new president and chief executive for its China operations. On the appointment, Peter Wong, chairman of HSBC China said “China is central to HSBC’s strategic aim of accelerating growth from its Asian franchise.”
“China is central to HSBC’s strategic aim of accelerating growth from its Asian franchise” - Peter Wong, chairman of HSBC China
If Mark Wang can help keep HSBC’s China program growing - the bank derives 80% of its earnings there - then it might have some immunity from the impact of coronavirus fears.