How Lloyds, RBS Barclays and other bank share prices are holding up26 May 2020 20:34
OPTO Trading Intelligence by CMCmarkets .com
26th May 2020, 14:40
In these extraordinary market conditions, we look at how UK banks performed in May, and evaluate analysts’ long-term targets for Lloyds [LLOY], Barclays [BARC] and RBS’s [RBS] share prices, among others.
It's no secret that the coronavirus outbreak sent bank shares into free fall. Lloyds’ share price, for example, was trading at 55.35p on 21 February. It now trades around the 30p level. RBS and Barclays’ share prices have suffered similar fates, sinking 45.6% and 39.5% respectively.
First-quarter UK bank earnings results saw profits halved and huge amounts put aside to cover loans. Yet May has seen share price rallies (however brief) from both big banks - including Lloyds, Barclays and RBS - and smaller challengers. An easing of lockdown measures and rumours of a coronavirus vaccine have all helped these upward peaks.
UBS banking analyst Jason Napier sees strength in the long-term outlook for the nation’s banks, like Barclays, Lloyds and RBS, in respect to both business and share price performance. Unlike in the EU where interest rates are -0.5, UK rates are still positive, while regulatory changes in the wake of the 2008 financial crisis mean banks have much more capital to absorb losses.
Still, there's a long way to go. According to UBS, both Lloyds and Barclays are looking at a 15% quarter-on-quarter decline in net interest income. Low-interest rates and pressure on CET1 capital ratios are likely to continue to hurt bank earnings in 2020. Distinctly uninspiring forecast for those invested or trading the banks’ share prices.
And if analysts thought Q1's dismal earnings were bad, things could be about to get worse. Next quarter's earnings will cover three full months of the coronavirus's impact. So how did UK banks hold up over the past month? And how should investors and traders of Lloyds, Barclays, RBS and the UK’s challenger banks’ share prices, position themselves for the rest of 2020?
Lloyds [LLOY] share price
As a bellwether for the UK economy, the outbreak has hit Lloyds harder than most. Lloyds’ share price is down 5.4% over the month and has struggled to mount any kind of rally. In fact, it saw 5 straight days of losses twice in the period as traders dumped the stock following the bank’s Q1 earnings.
Lloyds is the UK's biggest mortgage lender. Already it has set aside £1.4 billion in credit provisions to cover bad loans as people struggle to pay back debt. Next quarter this figure could rise sharply.
UBS has a 45p share price target on Lloyds. Hitting this would see a 60% upside.
Barclays [BARC] share price
Barclays’ share price is up over 16% this past month. Unlike Lloyds, the bank benefits from a more diversified business model. This includes an investment banking operation where revenue is largely unaffected by interest rate cuts. The bank has also benefited from relatively good Q1 earnings, with £900 million in statutory pre-tax prof
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