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Analysts forecast mixed Q3 results for HSBC, Barclays and Natwest

Financial and political turmoil has been dragging down the share prices of big UK banks since the end of September. Nevertheless, HSBC, Barclays and NatWest are all expected to report big third-quarter profits this week.

It’s a big week for UK banks as HSBC [HSBA.L], Barclays [BARC.L] and NatWest [NWG.L] all report against the backdrop of the mini-budget reversal.

Chancellor Jeremy Hunt’s decision to rip up his predecessor’s bungled tax cut plans has brought a measure of calm to the markets, but the Bank of England has warned that the U-turn will result in higher interest rates for borrowers.

On one hand, this could be good news for the UK’s banks as higher rates mean fatter returns, but rising prices and the cost-of-living crisis could result in more customers defaulting on their loans and missing repayments.

“It’s probably too soon for the UK’s big banks to show any fallout from Kwasi Kwarteng’s mini-budget on their profit and loss accounts or balance sheets … Nevertheless, analysts and shareholders will look to see if there are any tell-tale signs of an economic slowdown in the UK,” AJ Bell investment director Russ Mould said.

Strong dollar could hurt HSBC’s Asia business  

HSBC will get things underway on Tuesday 25 October. The bank’s UK business is smaller than its overseas markets, so the fallout from the mini-budget is unlikely to have a large impact on its figures. However, a strengthening dollar, which HSBC reports in, could put pressure on its revenues from Asia.

The Asia operation brought in the bulk of profits in the first half of the year – $6.3bn versus $2.5bn from the UK business. Higher interest rates saw its net interest margin (NIM) increase 9bps in the second quarter to 1.35%. Meanwhile, net loans and advances to customers fell from $1.045bn at the end of December 2021 to $1.028bn at the end of June. This was largely due to business activity in China being reduced by lockdowns.

Analysts at Goldman Sachs believe HSBC is in a “sweet spot” due to rapid rate increases and relatively light “funding pressures in key markets,” according to a note seen by Proactive Investors.

The HSBC share price is up 11.2% year-to-date through 21 October to 477.85p, but down 9% in the past month, a trend that has accelerated since the mini-budget announcement in late September.

Rising mortgage rates boost Barclays outlook

Barclays, which reports on Wednesday 26 October, ended the first half of the year with a NIM of 2.55%. It said on its earnings call that the outlook for NIM to end the year at the top end of a range of 2.40% and 2.50% that it had forecast in its Q1 results.

According to research from Bloomberg Intelligence analysts Jonathan Tyce and Lento Tang, Barclays should “easily” hit its target. Rising mortgage rates and potentially higher credit losses “will doubtless take up time on the analyst call,” they wrote.

The bank will also be looking to reassure investors on its annual costs outlook, which had risen from £15bn to £16.7bn at the end of June due to a trading mistake, in which it sold more structured notes than it was allowed according to regulations in the US.

Unlike its peers, the Barclays share price is down in the year-to-date. The stock has fallen 19.6% to 145.04p on 21 October and is down 13.6% in the past month.


NatWest forecasted to report profits of £1.3bn

When NatWest reported its interim results in July, it raised its full-year revenue guidance from £11bn to £12.5bn. It also raised its return on equity forecast for 2023 to between 14% and 16%. Its NIM at the end of Q2 was 2.72%, 26 basis points higher than Q1.

City analysts are expecting the bank to report profits of £1.3bn when it announces its Q3 earnings on Friday 28 October. It’s also set to swallow a provision of £131m for potential defaults compared to releasing £242m in bad loan reserves in the year-ago quarter.

If NatWest reports bumper profits as expected, then this would further strengthen calls for Jeremy Hunt to introduce a windfall tax on banks. Reserves held at the Bank of England have risen by £160bn over the past three years, according to This is Money. NatWest’s reserves account for half of the rise.

While the NatWest share price is up 8.2% in the year-to-date, it is down 11% in the past month.

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