EARNINGS PREVIEW:UK Banks 1H Good On Charges, Hit By Mkt Woes

29th Jul 2010 15:24

By Patricia Kowsmann Of DOW JONES NEWSWIRES TAKING THE PULSE: U.K. banks will likely report higher pretax profit for the first half of the year on lower impairment charges, although investment-banking activities could disappoint following a shaky second quarter, analysts say. "Overall, the results are likely to be characterized by positive and improving trends within domestic U.K., U.S. and Asian asset quality, offset by signs of weakness in revenue, largely within capital markets," Nomura said in a note. Investors, however, will focus their attention on any comments related new capital requirements and their future impact. Attention will also be given to refinancing issues, which are particularly worrisome in the U.K. According to the Bank of England, U.K. banks will need to refinance or replace GBP750 billion to GBP800 billion of loans and liquid assets by the end of 2012, with over GBP250 billion falling due next year. ANALYSTS' STOCK PICK: Lloyds is seen as the sector standout, both in the short and long term. The bank should gain in the long on improving performances for its U.K. retail and commercial banking, and in the short term from its low exposure to most sovereign-debt issues in Europe. COMPANIES TO WATCH: *HSBC Holdings PLC (HBC) -- Monday MAIN FOCUS: Attention will again be on impairment trends at the bank's U.S. operations, which were hard hit by the credit crisis but made a pretax profit in the first quarter for the first time in nearly three years. In addition, analysts will be looking at the bank's retail banking performance, particularly in Hong Kong, where interest rates continue to be low. Lower impairment charges for the whole group, however, should drive pretax profits higher. On average, analysts expect first-half 2010 pretax profit at $9.3 billion, up from $5 billion a year earlier, when it recorded a $2.3 billion charge from its own debt value. *Lloyds Banking Group PLC (LYG) -- Wednesday MAIN FOCUS: The bank, which is 41%-government owned, is expected to report a pretax profit of GBP590 million in the first half, after swinging to profit in the first quarter, analyst say. While impairment charges continued to drop following a long period of massive losses, net interest margins--a key measure of profitability for the banking industry--should continue to show an improvement from last year. It reported a first-half 2009 pro-forma pretax loss of GBP3.96 billion. Excluding fair-value adjustments related to the HBOS buy, Lloyds' pretax pro-forma loss was GBP7.68 billion. *Standard Chartered PLC (STAN.LN) -- Wednesday MAIN FOCUS: The Asia-focused bank has said it expects income and profit in the first half to be ahead of 2009, excluding a $248 million gain from a notes buyback in the year-ago period. Performance in the first half was driven by consumer banking and wholesale banking client businesses, although weaker market sentiment at the end of the second quarter has hurt momentum in the wholesale division, including in own-account income, the bank has said. Analysts will likely focus on net interest margins, which the bank said have fallen "fractionally" from 2009 levels. Pretax profit estimated at $3.1 billion, up from $2.8 billion a year earlier. *Barclays PLC (BCS) -- Aug. 5 MAIN FOCUS: All eyes will be on performance of investment banking arm Barclays Capital, following disappointing results from U.S. peers. Officials at the bank have said BarCap has experienced softer conditions in May and June, while the whole bank has seen a rise in impairments from corporate exposure, driven by Spain. Analysts, on average, expect pretax profit for the first half of GBP3.3 billion, compared with GBP3 billion a year earlier. *Royal Bank of Scotland Group PLC (RBS) -- Aug. 6 MAIN FOCUS: Bad-debt charges will continue to be in the spotlight for the 83%-government owned bank, while the performance of its investment banking unit will also be watched for signs of stress following a weaker end of the second quarter. Nomura expects a pretax loss of GBP494 million, compared with a GBP15 million pretax profit a year earlier, when it posted a GBP3.8 billion gain from own-debt repurchase. Biggest focus, however, will be on any news of disposals that could be announced as early as Tuesday, including the likely sale of 318 U.K. branches to Banco Santander SA (STD) and of its Global Merchants Services division to Advent International Corp. and Bain Capital LLC. -By Patricia Kowsmann, Dow Jones Newswires. Tel +44(0)207-842-9295, [email protected] (END) Dow Jones Newswires July 29, 2010 10:24 ET (14:24 GMT)