Friday 19 February 2021 3:37 pm

Lloyds and HSBC: What to expect in next week’s earnings

This week Barclays and Natwest announced a return to dividend payments but laid bare the extent of the pandemic on earnings. 

Barclays reported a 30 per cent drop in pre-tax profit to £3.1bn for 2020, while Natwest reported a pre-tax loss of £351m for the year. 

Next week it will be Lloyds and HSBC’s turn to report with dividends remaining a central focus. Barclays disappointed shareholders declaring a tentative 1 pence per share and it’s likely the other banks will follow suit. 

The Prudential Regulatory Authority, which effectively banned payouts last year, has said dividends for this year must be paid out of earned profit rather than balance sheet reserve meaning banks are treading cautiously. 

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Lloyds managed to show a return to profitability in the third quarter after posting a £602m in the first half of 2020 after increasing loan loss provisions by £300m. The bank, which reports on Wednesday, is expected to see impairments reach £4.7bn after an additional £586m in the fourth quarter, in line with Barclays’ hit. 

“The lowering of its loan loss provision estimate in Q3 may have been a little premature given the tightening of restrictions we saw throughout November and December, as well as the lockdown that’s been in place since the start of the year,” David Madden, chief market analyst at CMC Markets said.

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“The outlook continues to look highly uncertain given that a lot more of its customers are likely to find themselves in financial difficulty in the months ahead.” 

Analysts are predicting pre-tax profit to plunge from £4.4bn to £1bn with pre-tax earnings of £3.3bn, well below the pre-pandemic pea. 

Lloyds outlook is particularly uncertain given it is more exposed to the UK housing market than its peers. The bank is expected to pay out 1 pence per share ahead of an increase to 2 pence in 2021, still below the pre-pandemic peak. 

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Aside from the pandemic HSBC has had a difficult year largely in relation to its business in Hong Kong and its involvement in the Huawei spat. 

Like its peers, HSBC, which is due to report on Tuesday, is expected to deliver a dividend after it was blocked from paying out last year by the PRA. Madden predicts the payout could be blocked by regulators because it seems “somewhat premature”. 

HSBC reported a 36 per cent drop in pre-tax profit to $3.07bn in the third quarter, while loan loss provisions increased to $7.64bn. Analysts expect total provisions for the year to come in at around £10.3bn. 

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“With its much more international footprint and the outperformance of US banks in recent weeks, the pressure is on for HSBC to perform similarly well in its investment banking unit operations, even as its domestic retail operations have to deal with tighter Covid-19 restrictions in its UK market,” Madden said. 

There has been speculation that HSBC may offload its US retail operation as it looks to streamline its portfolio.