British banks facing further disappointments on revenues

City A.M. Reporter
UK banks will likely see more revenue disappointment before rebuilding their profitability, Seymour Pierce said yesterday, adding that consensus expectations for banking income growth were far too optimistic.

The brokerage said it was on average 10 per cent below consensus revenue expectations for 2012 for the sector, with the greatest disappointment likely at Royal Bank of Scotland, Barclays and Lloyds Banking Group. It placed a “sell” rating on the three stocks.

The brokerage said its expectations were based on the revenue growth rate banks achieved from the 1992-1996 recovery and the amount of fair value assets on their balance sheets.

“Although margins peaked four to six years after bad debts peaked in the mid-90’s, this will be a hard trick to repeat in this recovery, and we are currently seeing ‘peak margins’ now,” the brokerage said in a research note.

Seymour Pierce rated Standard Chartered “neutral” saying it was sceptical of the bank’s ability to achieve double digit compound annual income growth for the next three years.

HSBC, which has a large Asian business that escaped the worst of the downturn, was rated a “buy” by the brokerage.