A first glance it looks as if banks have made a strong recovery since the financial crisis. However, during the past week alone, Standard Chartered (LSE: STAN), Barclays (LSE: BARC) and Lloyds (LSE: LLOY) have all disappointed investors, showing that the banking industry is still far from a full recovery.
Dividend jeopardy
Lloyds was the first bank of disappoint this week. The results of the ECB’s stress tests were released on Saturday and Lloyds performed worse than expected. Indeed, it was found that after a simulated three-year period of stress, the bank’s common equity Tier 1 capital ratio fell to 6.2%, only 0.7% above the required minimum of 5.5%.
What’s more, Lloyds’ capital position was actually found to be worse than that of state owned RBS. While Lloyds’ management did point out that the ECB’s test results were unreliable as they used last year’s figures, the numbers are still concerning.
Moreover, Lloyds still has to pass a separate stress test, set and conducted by the Bank of England, which will be based on current figures. However, the BoE’s tests are rumoured to be tougher than those conducted by the ECB.
Unfortunately, if Lloyds fails to pass the BoE’s tests, it’s unlikely that the bank will be allowed to reinstate its dividend payout, something investors have been eagerly awaiting for some time now.
It seems as if Lloyds is still far from making a full recovery.
Multiple profit warnings
After Lloyds, Standard Chartered was the next bank to disappoint. The Asia focused lender issued yet another profit warning on Tuesday, reporting that profits had fallen 16% during the three months to September.
The bank blamed this poor performance on a rising volume of loan impairments. Bad loan impairments almost doubled during the quarter to $539m. As a result, the group is now looking to slash costs.
Management announced a $400m cost-cutting plan alongside results, put forward as a proof that it is acting to reverse a slide in its performance.
But there are now questions being asked about the state of Standard’s balance sheet. These are not new concerns, although the bank is now treading a fine line when it comes to the balance sheet as fines, bad loan impairments and a higher UK banking levy are all eating away at capital levels.
A mixed picture
As Lloyds and Standard disappointed, Barclays had a mixed week. The bank issued its interim management statement yesterday and on the whole, investors were impressed.
Even though business has slowed at the group’s investment bank, a pickup in sales at commercial and retail banking, along with Barclaycard’s improving performance, helped the bank report a 5% gain in adjusted group profit before tax during the third quarter.
Unfortunately, these results were overshadowed by the fact that Barclays was setting aside £500m as a provision for any fines stemming from its part in the global forex manipulation scandal — a timely reminded that Barclays is still facing litigation around the world, for mistakes made over the past decade.
The bottom line
Lloyds, Standard and Barclays have all shown this week that despite the progress they’ve made over the past few years, the mistake of the past continue to haunt them. These revelations have shown that the sector’s definitely still in recovery mode.