Banking tragedy fails to lift market players
You could say the UK banks reporting season is turning into a comedy of errors but perhaps a Shakespearean tragedy would be more apt.
It was an awful first act for the sector last week but the drama will reach its crescendo this week as we await downbeat numbers from HSBC, Barclays and RBS.
The plot so far: Last week Eric Daniels, star turn at Lloyds TSB, announced a 70 per cent fall in his company’s profits and yet delivered a cryptic punch line for the markets when, despite this, he increased the already sky-high dividend. Did he misread his lines? The audience gasped with incredulity.
Not to be outdone, HBOS, the UK’s largest mortgage lender added to the gloom, echoing consensus predictions of an up to 20 per cent fall in UK house prices up to the end of 2009. Today HSBC is seen reporting its worst numbers in seven years. Its US operations will be the main drag on numbers in the first half but it’s the outlook which will be key. More of the same can be expected from Barclays on Thursday and RBS the following day.
Not surprisingly, stocks are suitably downbeat. The European banking sector remains under pressure and has shown only sporadic signs of life despite falling over 30 per cent so far this year. Within that number, HBOS shares are down around 60 per cent and those in RBS are off over 40 per cent.
So when to buy? Well some brave souls have already made a grab for the falling knife and turned in some tidy profits. Barclays for instance was at one stage trading as low as 239p this year. Now around the 350p level, it has provided some great gains for some but is still carrying a lot of pain for those who have hung on in there since the 52 week peak just shy of 700p.
But when I speak to Barclays Capital president Bob Diamond this week on CNBC, it’s the proverbial line in the sand I and others be looking for – when will the banks return to business as normal. I doubt they’ll be able to give me an answer just yet.