On the whole, first quarter figures from the banks issued this week – with the exception of HSBC (HSBA) which reports next week – were hardly brilliant but they could have been worse. In fact, over the past few years they have often been far worse.
Barclays (BARC) posted profits down 25%, which was below analysts’ expectations, thanks in large part to the cost of restructuring. Income was down 13% and the investment banking side continues to struggle but one should not underrate the great news that there were no more provisions for mis-selling or regulatory misdeeds.
Every time I suggest that this catalogue of paying for past sins in coming to an end we get another batch, but perhaps we can start to hope.
Lloyds (LLOY) similarly has avoided further provisions though, like Barclays, it reported sharply lower profits. Lloyds would have done better had it not taken a hit from repaying debt run up during the financial crisis, a factor that will help future earnings.
Standard Chartered (STAN) has, over several decades, been the most erratic bank in terms of performance. It had been out of favour thanks to its heavy exposure to the economic slowdown in the Far East but is coming back into contention.
Shares actually jumped 9.8% despite a 59% drop in profits and a fall in revenue on relief that trading had not worsened after the poor performance in 2015. This really was taking optimism a step too far. I can only say that I would far rather be in Lloyds (which I am), HSBC (ditto) or Barclays.
The one bank I really can’t get my head round is Royal Bank of Scotland (RBS), whose update was such a mass of ifs and buts, and adjustments, and you name it, I simply couldn’t make proper sense of it. The warning that divesting Williams & Glyn will not only take longer than expected but will cost more was, commendably, issued as a separate statement rather than buried among the results but it is no less painful for being done honestly.
I still cannot make out any case for buying RBS shares. This bank is struggling more than all the others, is still recording losses and has that massive overhang of government-held stock waiting to be dumped on the market.
Apologies to those readers who have tired of reading this comment from me but there are investors who buy RBS shares in defiance of all logic. Don’t be one of them.
Calling the Floor of the FTSE
Several large and medium-sized companies went ex-dividend on the London Stock Exchange on Thursday this week, effectively cutting share prices by about 0.8%. Prices naturally fell at the opening – then kept on falling until around 10am, when they started to claw their way back.
I did wonder for a moment if perhaps some less experienced investors had overlooked the technicality and panicked but it occurred to me that small investors do not carry enough clout to have such a magnified effect.
However, day traders and computer-driven trades can have this kind of short term impact. They are likely to go with the momentum and, when they close their positions, the reaction can be equally exaggerated. It shows the importance for long-term investors in not panicking and being prepared to ride out fluctuations.
I was asked, quite reasonably, by one of my Twitter followers, Brian Holt, whether I was still confident that 6,200 points was the floor for the FTSE 100 index. My reply was that I felt more sure at 4pm than I did at 10am that day. In the event, the floor did hold. Each time it does so, the more likely it is that it really is the floor.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice.
