Investors focusing on details of £2.1bn share sale and impact of PPI costs and other charges
Britain’s two big bailed-out banks will post solid figures this week, but investors will want a detailed update on Royal Bank of Scotland’s (RBS) current state of health in light of the share sale the UK government has launched.
RBS and Lloyds are both expected to post a rise in quarterly profits helped by an improving economy and lower costs. The Edinburgh-headquartered bank is expected to post an adjusted third-quarter operating profit of £988 million on Friday, up from £896m. But minds will be concentrated on the £2.1 billion share sale announced by Chancellor George Osborne at a more than £1bn loss to the taxpayer.
Osborne insisted the move was the “right thing to do for the taxpayer”, coming seven years after the government rescued RBS with a £45.bn bailout at the height of the financial crisis.
It marks a milestone moment for the banking sector as it puts the crisis behind it, while it also kick-starts Treasury plans for a bigger privatisation programme than in the 1980s with aims to raise more than £30bn by the end of March.
But concerns have been raised over the timing of the Treasury’s decision to sell-down its 78 per cent stake in RBS after the taxpayer has been left nursing a £1.08bn loss. Osborne has defended the move, saying RBS needed to be returned to the private sector for the benefit of the economy and to help it rebuild itself.
Lloyds is expected to post a rise in quarterly profits at its results on Wednesday, as the lender books lower costs.
Analysts at Investec expect the bank to report underlying third-quarter pre-tax profits up 4.5 per cent to a record £2.3bn compared to a year ago, as it logs lower payment protection insurance (PPI) costs and other charges.
Investec said in this quarter it expected the bank, led by chief executive Antonio Horta-Osorio, to report “modest revenue growth, lower costs and potentially no charge at all for PPI, or other conduct issues”.
The broker said this should come as a “tangible relief” to investors who have seen the bank’s PPI costs alone climb to £13bn, after booking another £1.4bn charge in July. This month, the financial regulator, the Financial Conduct Authority, said it is considering a deadline for claims over mis-sold PPI, adding that PPI customers would still have at least until 2018 to claim compensation. This would draw a line under the mis-selling saga that spans some 20 years.
The government continues to offload its stake in the bank, and earlier this month sold a further 1 per cent, reducing its holding to less than 11 per cent. This has come down from 43 per cent in 2009.
Around £2bn of Lloyds shares will be made available to retail investors in the spring. The stock will be sold at a 5 per cent discount to the market price, and in a bid to avoid wealthier investors snapping up the lot, anyone applying for less than £1,000 worth will be prioritised.
Investors will be eager to hear more about the expected appointment of investment banker James “Jes” Staley to head Barclays at its update on Thursday, as the bank bids to rejuvenate its fortunes.
The move to install a former JP Morgan banker as chief executive is seen as signal that the group wants to return to its former investment banking glory. It is thought the announcement could be made within the next few weeks, ending a three-month search to replace Antony Jenkins, who was sacked in July for lacklustre revenue growth and flat share performance.
Analysts at UBS expect Barclays to post third quarter pre-tax profits down 4 per cent to £1.8bn compared to a year ago, “largely due to weaker investment banking revenues”.