Banking on the UK, as Q1 trading updates come into view

It’s been a choppy April for the UK banking sector with the sharp falls seen at the start of the month slowly being reversed as it becomes apparent that for all the risks around US tariffs, their effects on the UK economy, may well prove to be limited.

As providers of services, banks are also unlikely to be as affected as suppliers of goods, nonetheless that doesn’t mean that their customers won’t suffer a significant impact, which could place customer finances under significant strain in the coming months.

With reporting season now in full swing investors in the UK will be able to get a good look under the bonnet of the UK economy, as the high street banks get set to publish their Q1 trading updates, against a backdrop of a UK economy that may about to struggle further despite recent resilience in the latest GDP numbers.

Next week we will be getting the Q1 trading updates for Barclays, NatWest, HSBC and Lloyds and where we’ve seen the shares of all of them rebound strongly after falling sharply at the start of the month, and where by and large we’ve seen a good start to the year share price wise.

So far year to date Lloyds has led the way with gains in excess of 30%, followed by NatWest Group whose shares are up over 15%, followed by Barclays and HSBC.

Starting with Barclays on the 30th April the latest Q1 numbers ought to give us an insight into how the UK economy is doing with respect to demand for loans, and other types of credit for an economy that has just seen a big jump in the cost of living.

Barclays shares slid sharply in the aftermath of their full year numbers back in February, and while they did manage to make a marginal new 12 year high in March at 315p the shares have since slipped back below 300p.

On the whole, the full year numbers were better than forecast as pretax profit rose to £8.1bn, with Q4 profits coming in at £1.7bn, a 70% increase on the same quarter last year.

Profit attributable to shareholders also rose 24% with the bank announcing a £1bn share buyback with the bank keeping guidance for 2025 unchanged from its previous forecasts, which appeared to prompt some profit taking, coming as it did after seeing the shares rise over 45% from the lows seen in August last year.

As we look ahead to how the UK economy has done since then, and the recent changes to stamp duty which could affect future loan demand, it will be interesting to see whether Barclays chooses to change some of its forecasts for the remainder of 2025.

On the investment bank side Barclays ought to have done well if the recent US banking numbers are any sort of guide. It will be disappointing if we don’t see a strong performance here, especially in equities trading, even if areas like wealth management and M&A disappoint.  

Lloyds is an interesting one as there does appear to be a realisation that the shares here have been undervalued, with some decent gains since it published its full year numbers back in February, despite a brief drop back to 61p earlier this month.

Now back above 70p there is a decent chance we could see a move towards 80p barring any signs of a drop off in performance in the months ahead.

Having been consistently profitable over the last few years, the banks full year numbers were a little disappointing on the headline numbers with a 5% fall in net income, and a 20% drop in annual profits.

Statutory profit before tax fell from £7.5bn to £5.9bn, with the main drag appearing to be a 3% increase in operating costs.

For Q4, statutory profits after tax fell from £1.2bn a year ago to £700m, largely due to the bank setting aside a further £700m in respect of the motor finance scheme, adding to the £450m set aside a year ago.

This appears to have become a more manageable concern for investors than it was a few months ago, and on the underlying business there appeared to be few signs of consumer stress.

Loans and advances to customers were £10bn higher than a year ago at £459.1bn, while customer deposits rose to £482.7bn, up from £471.4bn at the end of 2023.

Net interest margins were slightly lower from a year ago, at 2.95%, and were slightly higher on a quarterly basis probably due to the move higher in gilt yields. These continued to remain elevated throughout this quarter so we could well see a similar effect this quarter.

On the dividend, the bank has raised this to 2.11p per share, pushing the total dividend to 3.17p, an increase of 15% as well as announcing a share buyback of £1.7bn, not the actions of a management who appear to be concerned at accruing further costs from its Black Horse Finance operation.

For 2025 the bank said it expected underlying NII to rise to £13.5bn, with operating costs expected to rise to £9.7bn, up from £9.4bn.

We will also be hearing from HSBC whose shares have seen a topsy turvy quarter rising to their highest levels since 2006, before slipping back to as low as 700p earlier this month on concerns over the effect a trade war with China might have on its business in Asia.

For Q4 HSBC reported $2.3bn in profits before tax, pushing total profits for the year up to $32.3bn, a $2bn increase on the previous year. A caveat to this increase in profits should be that these numbers included a $4.8bn gain from the sale of its Canada business, along with a $1bn loss derived from the disposal of the Argentina business.

A $1.6bn gain on the back of the acquisition of Silicon Valley Bank UK’s assets, and a $3bn impairment on its Bank of Communications stake completed the picture here. Total revenue of $65.6bn was slightly lower from last year’s $66bn, as was the next interest margin down from 1.66% to 1.56%.

Operating expenses were also higher, rising by 3% due to higher investment in tech. There was also a Q4 dividend of 36c a share along with a further $2bn shares buyback. On a regional basis the picture was as follows,

HSBC UK saw profits before tax fall by $1bn to $7.2bn, while profits at its Asia business surged to $20.47bn from $16.1bn.

On the outlook the bank says it expects to see NII of $42bn in 2025, having seen a decline of $3.1bn in 2024 to $43.7bn, and said it is looking to cut another $300m in costs for 2025.

We round the week off with NatWest which has seen its share price round trip from 480p in the aftermath of its full year numbers, to 380p and back again, even if the shares did initially slide back on the day of the release, due to disappointment over its guidance.

NatWest reported an attributable full year profit of £4.5bn, rounding off the year with Q4 profits of £1.25bn, with a final dividend of 15.5p a share, taking the total dividend up to 21.5p, a rise of 26%.

Net loans to clients rose by £12.9bn to £368.5bn with the acquisition of the Metro Bank mortgage loan book helping in that regard.

Customer deposits were also higher, rising by £12.2bn to £431.3bn. Impairment provisions came in at £359m for the year.

For 2025, NatWest said that it hoped that it would return to full private ownership with the government selling the rest of its remaining stake which only this week fell below 3%, having been as high as 84% in the aftermath of the financial crisis. That would be something to celebrate, finally drawing a line under more than 15 years of state ownership

It also said that heading into 2025 there was cautious optimism that the UK economy would prove resilient enough to enable the bank to keep making progress with the shares up over 130% from the lows in 2023.