PREVIEW: Barclays up next in string of likely downbeat banking updates

After investors fell over themselves on Tuesday to applaud Standard Chartered, Barclays and its performance comes into sharp focus on Wednesday.

Barclays office building, the UK bank has results out on Wednesday April 27
Barclays profit is forecast at £846mln, versus £1.9bn a year ago

It may be a sign of the times in banking, but investors fell over themselves on Tuesday to applaud the first of a likely downbeat string of updates from the UK’s big banks this week.

Asia-focused Standard Chartered Plc (LON:STAN) kicked off the first quarter reporting season with news of lower revenue, pre-tax profit and profit before losses on bad loans.

StanChart has faced a hit from the economic slowdown in emerging markets, particularly China.

Analysts have slashed numbers for all the FTSE 100’s big banks on fears about global economic turbulence, continuing fallout from industry scandals and uncertainty over a potential UK EU exit.

StanChart’s first-quarter pre-tax profits came in at US$589mln, down from US$1.4bn a year ago.

But its shares bounced 7% as investors heaved a sigh of relief that they weren’t any worse than dire figures at the end of last year.

Analysts flagged an improvement versus late 2015, when StanChart reported a loss of US$4.05bn.

Investors particularly welcomed news of fewer bad loans, leading to better-than-expected impairments of US$471mln.

Steve Clayton, head of equity research at Hargreaves Lansdown, said: “Things aren’t great at Standard Chartered so far in 2016, but they’re a lot better than they were at the end of last year.”

Russ Mould, investment director at AJ Bell, added: “A 7% jump in Standard Chartered’s shares may seem an odd way for the market to welcome a 59% drop in first-quarter stated pre-tax profit.

“But analysts had already slashed profit forecasts, so the bank has simply skipped over a low bar.”

Investors will seek at least more of the same – or better – when the UK’s domestic banks report their own first quarter figures.

Barclays Plc (LON:BARC) is first up tomorrow, with results for which the consensus adjusted pre-tax profit forecast is £846mln against £1.9bn a year ago.

Shore Capital analysts branded Barclays’s shares as undervalued and urged investors to buy the shares.

“We re-iterate our positive stance ahead of tomorrow’s update, despite expecting this to be somewhat downbeat,” they said.

Any positive numbers may again be eclipsed by one-off issues, such as further provisions for scandals such as payment protection insurance (PPI) mis-selling.

Analysts said banks may need to go back to basics to make real progress.

AJ Bell’s Mould said: “The UK bank sector is the worst performer in the FTSE All-Share year to date, after a fall of some 14%.

“For the grouping to really return to favour, it will need to start generating earnings forecast upgrades, via cost-cutting, increased lending and more helpful financial markets - not just beating downgraded numbers.”

Other companies set to report on Wednesday include:

Finals: Home Retail Group; Interims: Character Group, Fenner; Quarterly results: GlaxoSmithKline

Trading statements: Croda International, Stagecoach, Elementis, Henderson, London Stock Exchange, River and Mercantile, Antofagasta

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