The UK’s banks have been on a rollercoaster ride since the dark days of the credit crunch in 2008, from PPI mis-selling to Libor and the Forex scandal. Recent woes include market volatility, capital buffers and low interest rates depressing margins.
As first quarter reporting season kicks off with Barclays today, some good news at last: 2016 will be the final year of “mega conduct and litigation issues” for UK lenders according to a new report by Standard & Poor's released today.
Fines have cost Barclays, HSBC, Lloyds and RBS nearly £56bn since 2011. The report will give hope that there’s light at the end of the tunnel and relief for long-suffering shareholders – although it’s impossible to say for sure that there won’t be another wave of problems around the corner.
Either way, this week’s trading updates will reflect the consequences of the aforementioned low interest rates and market volatility.
First up, Barclays, whose share price has suffered this year, closing at 173p yesterday, compared to 219p on 31 December 2015. Last week’s updates from US banking peers Goldman Sachs and Morgan Stanley do not bode well for its much-debated investment banking arm.
RBS, which reports on Friday, is expected to post a first quarter loss of £957m, largely as a result of a £1.1bn payment to the UK Treasury for a golden share that gave the government first say on any dividend payments. Its removal brings the bank one step closer to dividend payments but it still needs to turn a profit.
Lloyds Banking Group, whose share price closed at 70p yesterday compared to 73p at the end of last year, reports tomorrow. It has managed to sidestep the more dramatic share declines seen across the international banking sector given its domestic focus but even that comes with a sting in the tail: uncertainty around the referendum. PPI concerns still linger.
Looking beyond the reporting season, the sins of the past may be receding for UK banks but fresh challenges lie ahead, including ring-fencing and IT legacy issues.
The sector’s shareholders are not out of the woods yet.