Just like Standard Chartered, Barclays, NatWest and HSBC, Lloyds yesterday reported better-than-expected first-quarter results and in each case bar HSBC the big banks’ share prices just shrugged, because there have been no upgrades to full-year outlooks, just guarded commentary on inflation, the global economy and interest rates.
But this slightly dull picture compares very favourably with what is happening to US banks, where two of America’s twenty biggest lenders have collapsed in 2023, and the good news is the UK’s Big Five are showing no real signs of deposit flight, any unexpected deterioration in their loan books or undue risk-taking.
This is a welcome marked contrast to their US counterparts and the UK banks trade cheaply relative to forecast earnings, dividends and historic tangible book, or net asset, value.
AJ Bell investment director Russ Mould said: “The key source of disappointment among investors seems to be the absence of earnings forecast upgrades, thanks to the cautious outlook statements offered by management teams, especially on the issues of net interest margin and loan losses.
“Expansion in the former is expected to slow after a rapid advance in 2022, even though the Bank of England may yet take the headline base rate of interest to 5% from 4.25%, according to current consensus estimates.
“But this makes sense for three reasons. First, there is competition between banks, especially as interest rates rise and savers and borrowers shop around for the best deals. Second, UK bank executives will be noting how competition from money market funds in the US is siphoning away deposits from American lenders. And finally, no bank executive will wish to face accusations of excessive profiteering from the regulator or the wider public.”