UK bank earnings preview: what to expect from their Q1 results?

The big four UK banks all unveil their first quarter (Q1) results next week, with investors interested to see just how large of an impact of the coronavirus crisis has had on the industry.

So far this year, the unprecedently challenging market conditions have seen Lloyds, Barclays and Royal Bank of Scotland (RBS) shares fall by more than 50% on a year-to-date (YTD).

HSBC has also seen its shares slump too, down 30% YTD, but the stock has remained more resilient during the Covid-19 crisis than its rivals, with investors hopeful that the lender will benefit from its strong presence in Asia which could emerge from the Covid-19 crisis earlier than other markets.

Speaking more broadly about the impact of the coronavirus pandemic on UK banks, analysts at Barclays said that while ‘potential for losses is high’ it believes that bank shares ‘effectively price in a severe downturn’.

‘We estimate current valuations imply £70bn of aggregate losses for our UK banks, or 50% off domestic bank capital,’ Barclays said in a note.

‘We expect a combination of painful rate cuts and weak activity to drive pre provision profits down circa 20% year-on-year,’ Barclays added. 'Likely strong Q1 trading income could prove to be an aberration.’

PRA requests UK banks suspend dividend

Much to the disappointment of shareholders, Britain’s largest lenders complied with guidance from the Bank of England (BoE) and suspended dividend pay-outs in 2020.

The big four, along with Santander and Standard Chartered all said that they would cancel their dividends for the 2019 financial year and agreed to refrain from making any pay-outs to shareholders in 2020. The banks even promised to cancel any share buyback intiatives too.

The Prudential Regulation Authority (PRA), the supervisory division of the BoE, welcomed the dividend cancellations and not having to take any formal action against any UK banks.

The PRA hopes that by keeping cash on lenders balance sheets, rather than in shareholders pockets, it will help the industry offset some of the impact of the Covid-19 crisis.

The regulator also expects banks not to pay any cash bonuses to senior staff over the coming months.

How much does it cost to buy UK shares with IG?

There are three ways to ‘buy’ UK shares with IG: spread betting, trading CFDs or buying physical shares. The cost will depend on which method you choose. The table below illustrates how the costs to get exposure to £10,000 of Lloyds stock, which is equivalent to 16,000 shares (quoted at 62.5p a share).

Remember, spread bets and CFDs are derivatives, which come with higher risk and reward than investing.

Cost to get exposure to Lloyds stock

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Note: Amounts do not include overnight funding charges and taxes. Spread bets are not subject to tax. CFDs are free from stamp duty, but subject to capital gains tax. Share dealing is subject to both stamp duty and capital gains tax.