What’s the latest on the UK banking sector ?

UK banks to report Q1 results at the end of April

The UK’s high-street banks are again due to update the markets on their quarterly performance as of 26 April. The Banks’ shares are some of the most highly traded on account of their ‘high beta,’ or tendency to move more than the index, and are often brought into the limelight as US results season gets underway, with US peers updating the markets a couple of weeks beforehand.

April is sure to herald one of the most exciting results seasons yet, following a year in which guidance was revised down… and down… and down. Banking stocks are heavily depressed, like their mining counterparts, and with expectations so low the potential for positive surprises is considerable.

What’s the latest on the UK banking sector?

The December 2015 US rate hike should help all the banks – not just US institutions – because banks and other financials such as insurance invest in US Treasuries. It should also be good for consumers who deposit money in bank accounts, but there is of course a catch when it comes to the UK and European banks.

That catch is the fact that interest rates are moving in the opposite direction virtually everywhere else in the world! Thus, any advantage gleaned from higher US interest rates is offset by lower European rates. Add to this regulatory controls imposed to prevent another financial crash and the outlook is dented further. With such a low bar, it’s worth setting an eye on the UK banks right now for any potential positive surprises on results day.

“In the Investment Bank, income in January and February was broadly in line with the same period last year. However in light of current market conditions… we do not expect as strong a performance for the whole of Q1 this year.” – Barclays

“We continue to deal with a range of uncertainties in the external environment, including those caused by the referendum on the UK’s continuing membership of the European Union. We will also have to manage conduct-related investigations and litigation… throughout 2016…” – RBS

The UK’s banks are already up off their historic lows

Above are two examples of just how low the bar has been set for Q1 results this year, such that the chance of an upside surprise is real. A surprise announcement by Lloyds Banking Group in February saw its share price close 13% higher on results day.

But we’re not even relying on a surprise to give us these attractive price moves. Shares in RBS fared badly in February (as expected?), closing 10% lower on results day. Having hit 5-year lows in early April, they’re now trading 15% higher. Barclays was another mover – its shares closed down 8% following its FY 2015 earnings report but are now 18% up from their own 4-year lows.

How to take advantage now

Whether you see UK banking sector stocks going up or down in the days before and after they report Q1 results, opportunities to trade will be numerous. There are three ways, among many others, to attempt to profit from earnings season.

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