FTSE 100 lenders cash in on market turmoil but provisions climb
FTSE 100 banking giants saw trading income spike in the first quarter as investors sold-off stocks in the face of geopolitical tensions, but tariff threats continued to weigh on future earnings.
HSBC kicked off reporting season pocketing a $9.5bn (£7.1bn) pre-tax profit, which surged ahead of the $7.8bn pencilled in by analysts.
Barclays and Natwest followed, booking £2.7bn and £1.8bn respectively, each surpassing analysts expectations. Standard Chartered pocketed $2.1bn (£1.6bn), up from $1.9bn in the same period last year.
Lloyds, which saw coasts soar in the first-quarter, fell in line with consensus at £1.5bn – but marked a seven per cent drop year-on-year.
Income from markets took centre stage after President Donald Trump’s erratic rhetoric on tariffs, a potential recession and trade policy triggered numerous stock selloffs.
Barclays’ investment bank cashed in on the market storm, bolstering its income 16 per cent to £3.9bn.
Meanwhile, HSBC’s revenue from debt and equity markets jumped 47 per cent to $1bn and wholesale transaction banking increased 14 per cent to $2.5bn.
British lenders followed suit with their Wall Street counterparts, which last month reported record equity revenues in the first-quarter.
Lenders up bad loan provisions
Whilst tariffs did not hinder first-quarter profits, the changing geopolitical landscape clouded Banks’ earnings outlook.
Lloyd’s finance boss William Chalmers said corporate customers had adopted a “wait and see” attitude but geopolitical tensions were “driving sentiment”.
HSBC raised expected credit losses to $876m, from $202m. Barclays said it had reserved £74m for “elevated US macroeconomic uncertainty”.
Natwest increased expected credit losses by £100m to £3.5bn and said it “retains post model adjustments of £0.3bn related to economic uncertainty or 8.7 per cent of total impairment provisions.”
Russ Mould, investment director at AJ Bell, said: “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.”
City bankers’ opposition to the ring-fencing regime also made headlines during results week, after bosses of HSBC, Lloyds, Natwest and Santander wrote to Rachel Reeves lobbying for the Chancellor to axe the system.
The regime requires major banks to separate their retail banking operations from their investment banking activities, introduced in the wake of the financial crisis to ensure stability.
Barclays’ CS Venkatakrishnan broke from his peers to defend the regulation, telling Sky News ”you have to weigh against this the immense amount of depositor protection that the ring-fencing regime gives the country”.
Net interest income holds ahead of looming cuts
The government’s changes to Stamp Duty triggered a surge in mortgage lending, with net loans at Natwest increasing £3.4bn to £371.9bn.
Net interest income remained steady across banks, despite three rate cuts from the Bank of England.
Dan Cooper, UK Banking and Capital Markets Leader at EY, told City AM: “Key drivers included rising contributions from banks’ structural hedges – a source that accounts for roughly a third of UK banks’ net interest income – healthy deposit growth and mix improvements, and signs of improving loan demand.”
The Monetary Policy Committee is anticipated to cut rates once more on May 8.
Cooper added: “UK banks have reported better than expected first-quarter results with no material signs of asset quality deterioration, demonstrating resilience in the face of rising economic uncertainty and ongoing geopolitical tensions.
“This stability was also evident among UK banks with significant international operations.”
HSBC and Standard Chartered’s stock took a bruising in the fallout of Trump’s ‘Liberation Day’ levies. The lender’s losses topped 15 per cent in the five days following.
Both firms have extensive ties to Asian economies, which were attacked with sizable tariffs from President Donald Trump.
But HSBC and Standard Chartered reiterated full-year guidance in their first-quarter reports, indicating confidence had not been significantly knocked by the President’s tariff onslaught.