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24 July 2012

UK bank shares: not for widows or orphans

No-one earning their bonuses right now.

By Douglas Blakey

The half yearly reporting season for UK-headquartered banks is almost upon us.

Following nine years of record profits, UK-based but Asia-Pac focused Standard Chartered is likely once again to be the strongest sector performer. It reports on 1st August and no major surprises are expected. StanChart’s shares remain the strongest performer of the UK banks; as of this morning, StanChart’s share price has fallen by a mere 10.8 per cent in the past 12 months.

The day before on 30 July, HSBC reports its first half profits. Notwithstanding all the understandable hullabaloo over its extensive anti-money laundering failures, the market is likely to be in forgiving mood. HSBC’s share price, in the past 12 months, is down a relatively modest 14 per cent.

The reporting season kicks off with Lloyds Banking Group (LBG) on Thursday. Expect to hear positive noises about profits growth in 2013 and earnings being boosted in 2014 as a result of the Project Verde sell off having been scaled down in terms of assets sold. LBG’s share price, by the by, is down a whopping 35.6 per cent in the past 12 months.

Barclays will report on Friday and will attract a great deal of attention, following its role in the LIBOR scandal and the departure of Bob Diamond. It may even report an increase in underlying profits of up to 10 per cent year-on-year in the six months to end June. The plunging share price of Barclays seems to have played little more than a peripheral role when it has come to determining bonuses at Barclays. In the past year alone, the Barclays’ share price is down by a whopping 33.6 per cent.

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Bringing up the rear, in more ways than one (share price down by 45.4 per cent in the last 12 months), Royal Bank of Scotland reports on 3 August. RBS continues to hemorrhage money in Ireland via its Ulster Bank operation. It remains very hard to foresee RBS returning to profit in 2012. The IT shambles earlier in the summer plus media rumours of an involvement in the LIBOR scandal, means that good news relating to RBS is some way off. There will be analysts that suggest that RBS’ share price has now sunk so low  – down from £3.63 to £1.98 in the past year – that it represents an attractive punt.  That may well be the case: but it is not one for widows or orphans.

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Just in case any of the UK banks dare to suggest that a collapse in bank share prices is a disease afflicting banks around the world and that they really are earning their bonuses, don’t believe them.

Two of the largest US-based banks – US Bancorp and Wells Fargo – have enjoyed strong double-digit share price growth in the past year; Westpac and National Australia Bank have also shown a rise in their share price while Canada’s largest lender, Royal Bank of Canada’s share price is flat.

Meantime, the results have been released today of the latest UK Customer Satisfaction Index (UKCSI) by the Institute of Customer Service. 

In the banking sector, the UKCSI shows – yet again – that first direct ranks top. With a certain degree of predictability, the Coop Bank ranks second.

The survey will really deserve a greater degree of comment if and when first direct and the coop do not come out at the top of the poll of 26,000 customers.

For the record, Yorkshire Bank ranked third, just ahead of Nationwide and HSBC in fourth and fifth places respectively.