Big banks are on a roll this earnings season. FTSE 100 banks have consistently shown an earnings jump. The trend started off with HSBC and then Lloyds Bank followed suit. Today, Standard Chartered (LSE: STANC) and NatWest (LSE: NW) have joined in.
Standard Chartered shares: the biggest FTSE 100 gainers
Standard Chartered shares are the biggest FTSE 100 gainers in today’s trading so far, with a huge 7.2% jump in price. The Asia-focused bank reported a 113% rise in profits in the first quarter of 2021 compared to Q1 2020. At $1.1bn, the number is also a huge improvement over the loss suffered in the last quarter.
As in the case of Lloyds Bank, earlier impairment charges formed the crux of why income rose. Even though Standard Chartered’s operating income in the latest quarter was less than that of Q1 2020, its net income was far higher because credit impairment charges or bad loan provisions were far lower. From $962m back then, they were down to $17m.
While lower chances of bad loans are indeed a positive, these numbers indicate that we should take the earnings growth with a pinch of salt.
It also mentioned that it’s awaiting an update from the Bank of England’s Prudential Regulation Authority (PRA) on dividends. If the PRA eases the current requirements, higher dividends can be expected. At present, its dividend yield is a small 1.3%.
The bank’s outlook is not entirely positive either. It expects the “recovery to be volatile and uneven”.
Still, it’s hopeful of growing its income and keeping its expenses in check. Its share price is way below its pre-pandemic levels, so it’s possible that as the situation improves, the Standard Chartered share price will rally.
NatWest share loses big, despite robust earnings
I think a similar story can play out for NatWest shares, which are the biggest FTSE 100 losers so far today with a share price fall of 3.5%.
And this was despite the fact that its profits more than doubled year-on-year in Q1 to £620m. But like Standard Chartered, operating income (calculated before accounting for bad loss provisions) was actually less than it was last year. Its headline income numbers were also smaller.
It hasn’t said much about dividends either. The bank’s dividend yield is at 1.5%.
And the bank didn’t say much on its outlook, except that it’s unchanged. CEO, Alison Rose, however, has reportedly expressed cautious optimism as the UK eases its lockdown.
The NatWest earnings report is a bit of a mixed bag, much like that for all other banks.
I think its share price has fallen only because the good news was already priced in, especially as other banks’ results came in earlier. Between last Friday’s close and yesterday, its share price had run-up almost 5%.
My takeaway
I expect NatWest’s share price to improve from here, going by its results and its still-low share price compared to early 2020. In fact, the case for banks, including Standard Chartered, just got a whole lot more positive. Still, I think they’re only cautious buys for me, going by economic uncertainty.
