It’s earnings season for the U.K.’s “Big Four” banks — Barclays, HSBC, Lloyds and NatWest — and despite taking a stock market beating at the beginning of March and mounting geopolitical tensions, there have been no cataclysmic losses for these major financial institutions (FIs).
Barclays and Lloyds reported a year-on-year decline in profits for the first half of the year (H1), while NatWest and HSBC saw their profits increase during the period. But away from the headline numbers, how these banks chose to present their performance reveals a lot about the state of their bottom lines.
The decline in profits in Barclays’ H1 earnings report is closely tied to spiraling costs related to the bank’s issuance of securities in excess of the amount registered under its U.S. shelf registration in the year ended December 31, 2021.
According to Barclays, the cost of that “rescission” — how much it will need to put aside to buy back the securities that it oversold last year — is estimated at £1.304 billion in H1 2022. Related monetary penalties from the U.S Securities and Exchange Commission (SEC) amounted to an estimated £165 million in the same period.
To add to Barclays’ headache, the group announced that it will be coughing up another $200 million to settle a U.S. regulatory investigation into the non-compliant use of messaging groups.
Barclays is the latest bank to be included in the probe, which relates largely to bankers’ failure to officially record communications made using the WhatsApp messaging service. Other major FIs including Bank of America, Morgan Stanley, Citigroup, Credit Suisse, Deutsche Bank and others have also been affected by the investigation.
Read more: Big Banks Face Big Fines Over Messaging Apps
In another financial blow, Barclays is refunding £181 million in loans brokered by the now-collapsed Azure Services following accusations of aggressive sales tactics dating back almost a decade.
In total, litigation and conduct charges in the first half of the year amounted to £1.86 billion, compared to just £176 million in the same period last year.
Following the announcement of its H1 results Monday (Aug. 1), HSBC’s shares rose nearly 7% on the London Stock Exchange, making it the best performer in the benchmark FTSE 100 Index.
The boost in share price appears to be a result of the bank announcing plans to resume the payment of quarterly dividends starting in 2023.
“We understand and appreciate the importance of dividends to all of our shareholders. We will aim to restore the dividend to pre-COVID-19 levels as soon as possible,” CEO Noel Quinn said in a statement.
HSBC used its earnings presentation to push back against calls to split its more profitable Asian operations into a separate entity after it was reported earlier this year that the bank’s largest shareholder, the Chinese insurance giant Ping An, had asked the FI’s board to consider a break-up of the bank.
See also: HSBC’s Lead Investor Calls for Breakup
Although he didn’t make direct reference to Ping An, Quinn’s statement could be read as an implied rebuttal to the reported breakup request: “Our strength as a well-connected, global institution is the main reason our wholesale clients choose to bank with us, and we are determined to capitalize on the advantages our network gives us.”
Thanks to solid growth across its balance sheet, including an increase in customer deposits by nearly £70 billion since the end of 2019, Lloyds is awarding its shareholders with an interim ordinary dividend of 0.8 pence per share, an increase of around 20% on last year.
Since launching its new strategic vision in February, Lloyds has embarked on a mission to become a “U.K.-focused digital leader” in financial services. In July, the bank’s new structure, which involved a corporate reshuffle and the creation of an “embedded finance” division, came into effect.
The bank is also in the process of splitting up its retail division, with one part focused on consumer lending and the other on current accounts and savings. The commercial business will also be divided, with one focusing on smaller businesses and the other on larger clients.
Recently, Lloyds’ CEO Charlie Nunn suggested that the bank was considering further FinTech acquisitions to bolster its technological armory. As Bloomberg reported this month, Nunn said the company — which recently purchased wealth platform Embark Group and protection firm Cavendish Online — will “definitely continue to look” at future acquisitions.
NatWest has had a good start to the year across the three verticals in which it operates: commercial and institutional, retail banking and private banking.
Like Lloyds, the bank has placed a strong emphasis on decarbonization and used its H1 2022 report as an opportunity to show off its climate-positive initiatives, including a 90% increase in “green mortgages” compared to H1 2021.
“We’re also helping smaller businesses with green loans to help them buy solar panels, electric vehicles and heat pumps,” Alison Rose, group CEO, said during the H1 results presentation.
Moving forward, the bank seems committed to accelerating its digitization efforts.
“The majority of [NatWest] customers now interact with [the bank] digitally,” Rose said. She added that 61% of retail customers are “entirely digital,” a 50% increase from Q1 2020, while almost 90% of retail customer needs are being met digitally.
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