Major financial institutions in the FTSE 100 capitalize on market turbulence, raking in significant profits, yet provisions for potential losses increase too.
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The bigwigs in the UK banking sector, like HSBC, Barclays, NatWest, Standard Chartered, and Lloyds, have experienced a notable upsurge in trading income during the first quarter. This surge is primarily due to investors selling off stocks because of global geopolitical tensions, but ongoing tariff threats continue to weigh down on future profits.
HSBC kicked off the reporting season with an impressive $9.5bn (£7.1bn) pre-tax profit, significantly surpassing the $7.8bn analysts had predicted. Barclays followed suit, recording £2.7bn in profits, and NatWestbooked £1.8bn, both outperforming analyst expectations. Standard Chartered pocketed $2.1bn (£1.6bn), up from $1.9bn in the same period last year. Despite a seven percent drop year-on-year, Lloyds managed to meet consensus at £1.5bn.
The increased trading income can largely be attributed to President Donald Trump's unpredictable rhetoric on tariffs, potential recessions, and trade policy. This erratic environment has led to numerous stock selloffs, and Barclays' investment bank capitalized on the market chaos, boosting its income by 16% to £3.9bn.
On the other hand, HSBC's revenue from debt and equity markets skyrocketed 47% to $1bn, and wholesale transaction banking increased 14% to $2.5bn. These British lenders have effectively followed in the footsteps of their Wall Street counterparts, who reported record equity revenues in the first quarter.
Despite the positive first-quarter profits, the changing global political landscape has cast a shadow over the banks' earnings outlook. Lloyd's finance boss, William Chalmers, remarked that corporate customers have adopted a "wait and see" attitude, but geopolitical tensions have a significant impact on sentiment.
As a precautionary measure, banks have increased provisions for potential bad debts. HSBC raised expected credit losses to $876m, up from $202m. Barclays set aside £74m for "elevated US macroeconomic uncertainty." NatWest increased expected credit losses by £100m to £3.5bn and retained post model adjustments of £0.3bn related to economic uncertainty or 8.7% of total impairment provisions.
Russ Mould, an investment director at AJ Bell, stated, "Like several of its peers, Natwest has felt it prudent to increase provisions for bad debt - based not on what it is necessarily seeing in its loan book but due to the uncertainty created by US tariffs."
During results week, the bankers' opposition to the ring-fencing regime also made headlines. The heads of HSBC, Lloyds, NatWest, and Santander wrote to Rachel Reeves discouraging the Chancellor from maintaining the system. The ring-fencing regime, introduced following the financial crisis, requires major banks to separate their retail banking operations from their investment banking activities to ensure stability.
Barclays' CS Venkatakrishnan bucked the trend by advocating for the regulation, stating, "You have to weigh the immense amount of depositor protection that the ring-fencing regime gives the country."
The increase in mortgage lending, triggered by the government's changes to Stamp Duty, has allowed net loans at NatWest to rise £3.4bn to £371.9bn. While net interest income remained steady for the banks despite three rate cuts from the Bank of England, banks are bracing for another expected rate cut on May 8.
Experts, such as Dan Cooper, UK Banking and Capital Markets Leader at EY, expressed optimism about the banks' resilience despite the rising economic uncertainty and ongoing geopolitical tensions. "UK banks have reported better-than-expected first-quarter results with no material signs of asset quality deterioration," Cooper said.
HSBC and Standard Chartered's stock took a hit in the aftermath of Trump's 'Liberation Day' tariffs, with the lenders experiencing losses of over 15% in five days. Given their extensive ties to Asian economies, these banks faced substantial tariffs from President Donald Trump. However, both firms remained optimistic, reiterating their full-year guidance, indicating that their confidence was not significantly shaken by the President's tariff onslaught.
Enrichment Data:
Geopolitical tensions and tariff threats have significantly impacted the trading income and earnings outlook of FTSE 100 banking giants. Short-term trading income has surged due to market volatility, while provisions for bad debts have increased due to the uncertain economic environment. HSBC, Barclays, NatWest, Standard Chartered, and Lloyds have all experienced gains, but long-term earnings predictions remain uncertain. Key drivers for the surge in trading income include presidential rhetoric on tariffs, ongoing geopolitical instability, and rise in contributions from banks' structural hedges. Banks like HSBC and Standard Chartered have extensive ties to Asian economies and were hit hard by sizable tariffs imposed by President Donald Trump. However, these banks have remained optimistic about their future performance.
- The UK banking sector, including HSBC, Barclays, NatWest, Standard Chartered, and Lloyds, have seen an increase in trading income, primarily due to global geopolitical tensions and tariff threats.
- HSBC began the reporting season with a pre-tax profit of $9.5bn, exceeding analyst predictions, while Barclays and NatWest also outperformed expectations.
- The financial industry is closely watching presidential rhetoric on tariffs and trade policy, as it has contributed to numerous stock selloffs.
- Revenue from debt and equity markets at HSBC has increased by 47%, and wholesale transaction banking has risen by 14%, mimicking the equity revenue successes of Wall Street counterparts.
- Banks, such as HSBC and Barclays, have increased provisions for potential bad debts due to the uncertain economic climate.
- The ring-fencing regime, a regulation introduced following the financial crisis, requires major banks to separate their retail banking operations from their investment banking activities.
- Experts have expressed optimism about the banks' resilience, despite the rising economic uncertainty and ongoing geopolitical tensions.
- Trump's 'Liberation Day' tariffs have affected the Asian economies with extensive ties to HSBC and Standard Chartered, causing significant losses for both firms.
- The increase in mortgage lending, due to government changes to Stamp Duty, has contributed to a rise in net loans at NatWest.
- Politicians, experts, and industry leaders are debating the impact of policy and legislation, war and conflicts, technology, personal-finance, banking-and-insurance, crime-and-justice, and general news on the UK banking sector and its future performance.
