- Standard Chartered joins Lloyds, Barclays, NatWest and HSBC in beating expectations for the third quarter
- Low loan impairments and higher-than-forecast net interest income are common themes
- Cash returns to shareholders via dividends and buybacks remain generous
- Big five banks represent more than a fifth of FTSE 100’s forecast total profit and dividend but just 12% of the index’s market capitalisation
- Standard Chartered and Barclays still trade at a discount to book value
“Standard Chartered’s third-quarter results are comfortably better than analysts’ forecasts, as loan losses come in lower than thought and net interest income and margins hold up better than anticipated, to mirror trends seen across the big five FTSE 100 banks between July and September,” says AJ Bell investment director Russ Mould. “The net result is an aggregate 17% year-on-year increase in pre-tax profits to £13.6 billion across Barclays, HSBC, Lloyds, NatWest and Standard Chartered for the third period and the best outturn for the July-to-September quarter since 2015, when quarterly data first became available from all five of the lenders.
Source: Company accounts for Barclays, HSBC, Lloyds, NatWest and Standard Chartered
“The fourth quarter tends to be when the big banks clean house and take the worst of any loan and asset valuation impairments, so much will depend upon the final three months of the year, but the Big Five are currently on course to almost match 2022’s all-time high total pre-tax profit of £48.7 billion.
“The banks did not dash to upgrade expectations for 2024 overall, citing uncertainties facing the macroeconomic, political and geopolitical outlook, such as China’s stimulus plans, the US election and the UK’s Budget, while Lloyds is also assessing the implications of the Financial Conduct Authority’s investigation into the car financing market in the UK. Lloyds swallowed a £450 million provision to cover potential costs here in the fourth quarter of 2023.
Source: Company accounts, Marketscreener, analysts' consensus forecasts for Barclays, HSBC, Lloyds, NatWest and Standard Chartered
“HSBC was a bit of an outlier, in that non-interest income provided the bulk of the revenue upside surprises, as generally net interest margins and net interest income exceeded analysts’ forecasts.
Source: Company accounts
“Volatility in equity, bond and currency markets, thanks to uncertainty over the global pace of interest rate cuts, China’s stimulus plans and heightened tensions in the Middle East has helped investment banking operations, and careful cost control and low levels of loan losses have also helped profits to come in higher than expected.
“Loan and asset write-downs totalled £1.8 billion between July and September. Although this figure was higher than in the first or second quarters it represented a 30% drop compared to the same period in 2023 and impairments have remained very modest as a percentage of total loan books.
Source: Company accounts for Barclays, HSBC, Lloyds, NatWest and Standard Chartered
“Buoyant profits continue to support bumper cash returns to shareholders. Indeed, HSBC declared its intention to run another $3 billion in share buybacks in the fourth and final quarter of the year.
Source: Company accounts, Marketscreener, analysts' consensus forecasts for Barclays, HSBC, Lloyds, NatWest and Standard Chartered
“However, analysts continue to forecast nothing more than flat profits for 2025, thanks to concerns that lower interest rates will compress net interest income, and perhaps there is a feeling that this may be as good as it gets for the big five banks.
“The banks represent 21% of the FTSE 100’s total forecast pre-tax profit for 2024 and 21% of forecast total dividends (including HSBC’s special payment), yet they represent just 12% of the index’s market capitalisation.
Source: Company accounts, Marketscreener, analysts' consensus forecasts for Barclays, HSBC, Lloyds, NatWest and Standard Chartered
“That suggests there remains a degree of scepticism as to the banks’ long-term earnings power, in the face of digital-only competition, regulatory scrutiny and lower rates.
“This can also be seen in the individual banks’ valuations, especially Barclays and Standard Chartered, which continue to trade below net asset, or book, value per share.”
Source: Company accounts, Marketscreener, analysts' consensus forecasts and LSEG Refinitiv data
