British banks have a low bar to leap over this earnings season

London: Expectations are running low for UK banks this reporting season.
Earnings for the FTSE 100 Index’s second-biggest industry group fell about 14 percent in 2016 on average, according to forecasters surveyed by Bloomberg. Not only that, analysts are now the most bearish on their shares since 2009, following gains in recent months spurred by global reflation bets.
All five lenders on the country’s benchmark — making up about 14 per cent of the gauge — will release annual results this week. HSBC Holdings kicks off the season on Tuesday and Standard Chartered wraps it up on Friday.
Valuations
Britain’s biggest banks trade at a little under 0.8 times the value of their assets on average, according to data compiled by Bloomberg. That’s close to the highest multiple since the beginning of last year, before concerns about capital strength in lenders across the world triggered a selloff. At 1.1 times book value, Lloyds Banking Group Plc shares are the most expensive, while Royal Bank of Scotland Group’s are the cheapest.
Ratings
Following a rebound of 30 per cent or more at all five UK banks since the aftermath of the country’s Brexit vote in June, stock analysts are getting more negative. The average analyst rating for the shares — where 1 is lowest and 5 the highest — dipped below 3 and is hovering near a level not seen since 2009. While RBS is the lowest-rated, Lloyds is at the top.
Expectations
With a profit drop baked into expectations for 2016 earnings, investors will watch for comments on future performance during earnings updates. Analysts are more optimistic about UK bank profits in 2017, calling for a 13 per cent increase. That still lags other banks on the Stoxx Europe 600 Index, whose earnings are estimated to jump 16 per cent in the period.
Some of the worst post-results stock performances have come from RBS. Its shares have dropped on every single earnings day for the past two years, and the options market is implying a move of 4.5 per cent either way this time. Traders are pricing in a 2.5 per cent move in HSBC shares on Tuesday.