British Banks Buoyed by Results Offering Rare Respite From 2020

From surging mortgage issuance at Lloyds Banking Group Plc to a strong trading performance at Barclays Plc, British banks reported a series of upbeat results this month.

The results stood out in a year where lenders have been roiled by a global pandemic and face the uncertainty of Britain’s future relationship with the European Union. Executives emphasized lower-than-expected loan loss charges, pointed to their strengthening balance sheets and talked of a return of dividends, which have been suspended since March.

The results drove bank stocks higher. Barclays shares rose as much as 8.7% last Friday when it reported results. This week, HSBC Holdings Plc gained as much as 7.2%, Lloyds 5%. and NatWest 6.6% on the days they reported results.

Barclays took a 608-million-pound ($787 million) charge to anticipate bad loans from the crisis -- less than the 1 billion pounds analysts estimated. HSBC, Lloyds and NatWest all said impairments for the year would be at the lower end of their forecasts.

British Banks Buoyed by Results Offering Rare Respite From 2020

The banks also trumpeted their improving CET1 ratios, a key measure of capital strength. “We have one of the strongest balance sheets now in the modern history of the bank,” Barclays Chief Executive Officer Jes Staley said in a Bloomberg Television interview Oct. 23.

British Banks Buoyed by Results Offering Rare Respite From 2020

The U.K.’s buoyant housing market also provided a boost. Mortgage applications at NatWest increased by 91% in the third quarter, compared to the three months through June. Lloyds increased mortgage lending by 3.5 billion pounds in the quarter.

Still, the positive results haven’t dispelled significant headwinds ahead. Lloyds’ comments were typical, warning of a “highly uncertain” outlook given the rebound in coronavirus infections, potential for another lockdown, the fraught Brexit process and an end to the furlough program that supported household incomes.

Forecasts of the potential costs of such scenarios were rare, although HSBC gave an estimate of the potential cost of just one of these outcomes. Chief Financial Officer Ewen Stevenson said on an analyst call Tuesday that credit losses in the final three months of the year could rise by between $500 million and $1 billion in the event of a no-deal Brexit.

And on the same day Lloyds reported its results, the scale of the challenge lenders still face was underlined when France and Germany imposed new shutdowns to try to control the virus.

That uncertainty explains why all four bank stocks are down by around half this year, despite their most recent results.

British Banks Buoyed by Results Offering Rare Respite From 2020

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