The Week Ahead: UK banks and the numbers that matter

As the UK bank sector results season gets underway, we pick out the things you need to know. 

There'll be plenty of Brexit news to chew over next week, but, away from politics, the start of bank reporting season here in the UK is one of the major events.

Bank shares have been a major beneficiary of the soothing of relations between UK and EU negotiators in recent weeks, which resulted in Boris Johnson's Brexit deal. And Brexit may well remain a significant driver of sentiment toward the sector. 

However, numbers made public by domestic banks in the days ahead will tell us much about the underlying health of the high street lenders, and could, on their own, be significant enough to move share prices. We've highlighted below what to watch for when The Royal Bank of Scotland (LSE:RBS) announces results on Thursday and Barclays (LSE:BARC) releases figures on Friday.

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Monday 21 October

Trading Statements

Petra Diamonds, Gfinity

Tuesday 22 October

Trading Statements

St James's Place, Travis Perkins, Reckitt Benckiser, Whitbread, Essensys

AGM/EGM

Accrol Group, McBride

Wednesday 23 October

Trading Statements

Harbourvest Global Private Equity, Softcat

AGM/EGM

Beeks Financial Cloud Group

Thursday 24 October

Net interest income (NII) will be a major focus for investors this results season, given the low interest rate environment and its impact on bank profits. 

Deutsche Bank analysts expect NII to remain under pressure at Royal Bank of Scotland in the third quarter as margins track lower rates. But keep a close eye on margin guidance, they say:

"RBS remains the most rate sensitive bank in the UK. We would further keep an eye on PPI updates."

NII is seen up 3% quarter-on-quarter to nearly £2.03 billion, but down 6% on last year. Adjusted pre-tax profit is tipped to add 7% to the previous quarter at £1.22 billion, although that's down 25% on Q3 2018.  

Tangible net asset value (TNAV) is pencilled in at 271p, down 6% on the quarter and 5% annually, net interest margin is expected to be 1.83% versus 1.78% in Q2 and 1.93% a year ago, and adjusted return on tangible equity (ROTE) is seen up to 9.8%. RBS's Common Equity Tier 1 (CET1) ratio - a measure of a bank's financial strength – should come in at a respectable 16.1%.

"RBS's capital return story is playing out well, and the bank remains well positioned to cut costs," writes Deutsche.

"But we expect significant headwinds from lower margins and lower forward rates. Brexit-related political uncertainty is adding pressure on the stock. We are cautious ahead of the Brexit and upcoming margin pressure. We rate the shares 'hold'." 

The broker's target price is 215p.

Stocks that begin trading without rights to the latest dividend include JD Wetherspoon (LSE:JDW), William Hill (LSE:WMH), ITV (LSE:ITV), Howden Joinery (LSE:HWDN).

Trading statements

Kaz Minerals, National Express, RELX, Royal Bank of Scotland, AJ Bell, Novolipetsk Steel, Mail.RU Group, Kcell, AstraZeneca, RDI REIT

AGM/EGM

Stranger Holdings, South32, Myanmar Investments International, Alumasc, Oil & Gas Development

Friday 25 October

For Barclays, analysts at Deutsche Bank expect margins to remain "broadly stable" due to "asset mix shift and lower refinancing" during the quarter.

Expect net interest margin of 2.78%, down from 2.82% in Q2 and 2.94% a year ago, an increase in adjusted ROTE to 9.2%, and slight decline in CET1 ratio to 13%.

Look for total income of £5.29 billion, down 2% quarter-on-quarter, but up 2% year-on-year. Pre-tax profit is tipped to hit £1.62 billion, up 14% and 1% respectively, while forecast TNAV of 268p is down 3% on the previous quarter and up 3% annually.

"We will watch for commentary around margin development, given forward rates expectations and commentary around continued market share gains in Corporate & Investment Bank (CIB). Updates on PPI would also be closely watched," writes Deutsche Bank.

"We like Barclays for its resilient, high return domestic business," the broker adds. "Additionally, the international operations benefit from market share gains in investment banking, improving momentum in transaction banking and good growth in the Consumer, Cards and Payments franchise.

"Solid capital ratios allow for significant capital return to shareholders via a regular, progressive dividend with upside potential via share buybacks. All this comes at a valuation discount to all relevant peer groups. Buy." Target price is 170p.

Trading statements

Barclays