Quick Insights On Two Banking Stocks: LLOY, RBS

Quick Insights On Two Banking Stocks: LLOY, RBS
Overview

The banking sector is currently being impacted by PPI (Payment Protection Insurance) mess. In the span of twenty years (1990-2010), this scheme was mis-sold by the leaders of the industry to the superfluous target audiences. This scheme was originally based on the concept to recover the debt in the special case of default by the borrower. As a result, the banks were at receiving end, but now the deadline to submit the claims has arrived (Thursday, 29th August 2019) and will have a positive impact on the overall banking stocks.

About Lloyds Banking Group PLC

Lloyds Banking Group Plc (LLOY) is a London based lender and offers a wide variety of banking and non-banking services predominantly in the UK. The group offer services related to current and savings accounts, short and long-term loans, credit and debit cards, unsecured loans, investment products, mortgages, motor finance, protection, bonds and syndicated loans. The company’s operations are differentiated in four operating segments being the Commercial Banking segment, Insurance segment, Retail segment, and Consumer Finance segment.

LLOY Recent News

On 31st October 2019, the company will announce the Q3 FY19 interim management statement.

LLOY Financial Highlights (H1 FY2019, £million)

In H1 FY2019, the company had delivered a strong underlying profit of £4.2 billion, in line with the previous year, with a statutory profit after tax of £2.2 billion, despite an extra PPI (payment protection insurance) charge of £650 million. Banking net interest margin declined by 3 bps to 2.90 per cent as compared with the corresponding period of the last year. Cost to income ratio decreased by 1.8pp to 45.9 per cent.

Statutory return on tangible equity was up by 0.2pp to 11.5 per cent as compared to 11.3 per cent in half-yearly to 31st December 2018. The loan portfolio remained to be well-positioned, and credit quality also remained robust, reflecting the company’s prudent credit risk policy. The company’s (interim) ordinary dividend per share was recorded at 1.12 pence, surged by 5 per cent against the same period in 2018.

The company will issue their “living wills” from June 2021, alongside an assessment from the BoE (Bank of England).  With more than £50 billion, all the United Kingdom lender banks in retail deposits will be subject to the rules; the same standard also used for the BoE’s annual stress tests of lenders’ balance sheets. For the first living will, lenders will have to get their initial reports to the BoE by October 2020.

The company revealed another charge relating to PPI mis-selling and this will impact its capital building efforts and cut its projected return on tangible equity for the financial year 2019. But the company has another looming problem: a no-deal Brexit. The company said that it had various initiatives in place to mitigate deterioration in its loan book if the United Kingdom leaves the European Union without a deal.

The company has shown decent financial performance in the H1 FY2019. The rising interest rate can help the company to improve its margins but can decrease the demand for loan. FY19 guidance of net interest margin was 2.90 per cent but indicates that NIM is unlikely to rise in the coming financial year. Operating cost will remain below £8 billion and net asset quality ratio will remain below 30 basis points. The company is on track to deliver capital generation in line with its target of 170-200bps per annum.

LLOY Share price performance

Daily Chart as at 30-August-19, before the market closed (Source: Thomson Reuters)

While writing (as on 30 August 2019, at 02:41 PM GMT), LLOY shares were trading at GBX 50.09 per share; which was up by 2.18 per cent as compared to the previous day closing price level. The company’s M-cap (market capitalisation) was recorded at £34.94 billion at the time of writing.

LLOY shares have touched a new peak of GBX 67.90 (as on 23 April 2019) and a bottom price level of GBX 48.16 (as on 15 August 2019) in the last 52 weeks. The company’s shares were trading at 26.22 per cent lower than the 52-week high price mark and 4 per cent higher the 52-week low price mark at the current trading level as can be seen in the price chart.

The stock’s traded volume before the market close was hovering around 55,618,503 at the time of writing. The company’s 5-day stock’s average traded volume was 157,307,721.40; 30 days average traded volume- 166,043,328.50 and 90 days average traded volume – 149,428,775.63. The beta of the company’s stock was recorded at 0.68, which means it was less volatile in comparison with the index considered as the benchmark.

The shares of the company were faring below the 30-days and 200-days simple moving averages at the time of writing, which depicts a downtrend from the current trading levels.

LLOY shares have delivered a negative return of 13.37 per cent in the last quarter. The company’s stock plunged by 3.94 per cent from the start of the year to till date. The company’s stock has delivered a negative return of 17.62 per cent in the last year. 

The stock’s RSI (Relative Strength Index) was recorded at 33.66, 34.51 and 40.82 for the 30-days, 14-days and 9-days respectively. Also, the stock’s RSI was recorded at 57.12  for 3-day. 

About- Royal Bank of Scotland Group Plc

Royal Bank of Scotland Group Plc (RBS) provides financial products and services to the customers in the UK and abroad markets. RBS holds brands such as Coutts, NatWest, Holt’s Child & Co., Lombard, etc. under its name and few are even older than the Royal Bank itself. The company’s operations are differentiated in four operating segments: Personal & Business Banking (PBB), Commercial & Private Banking (CPB), RBS International (RBSI), and NatWest Markets.

 

RBS Recent news

The company announced a dividend of US$ 0.01 on preferred shares (non-cumulative) payable on 30th September 2019.

RBS Financial Highlights (H1 FY 2019, in £m)

Despite lower central treasury income in the first half of 2019, the lender’s total income surged by 6.2% or GBP 415 million to GBP 7,117m as compared to GBP 6,702m in H1 FY 2018. Net interest income reduced by 7% and the net interest margin was 2.04%, which was 9 bps lower than the year-ago period. Other expenses reduced by GBP 173 million during the period under consideration against the H1 2018. In the H1 FY19 period, operating expenses of the lender decreased by GBP 635 million, or 13.4%, to GBP 4,100m. The bank recorded an operating profit of GBP 2,694 million in the period under review, representing a surge of 48% over the year as the operating expenses reduced considerably. An attributable profit (common shareholders) of GBP 2,038 million was recorded in the first half of 2019, and basic earnings per share stood at 16.9p. Return on tangible equity was 12.1% for the first half of 2019, and Capital Equity Ratio (CET1) was at 16.0%, with cost/income ratio of 57.2%.

In quarters to come, RBS is well placed to reduce its costs and has recently done a lot of good work. The bank has also paid its first dividend of 5pence per share along with a special dividend of 12pence per share since the 2008 financial crisis in the first half of 2019.

Also, the lender has a humungous capital surplus, and TIER 1 risk-adjusted capital ratio of the bank stood at 18.2%, which is well above the regulatory target and substantially above the industry average of 14.45% recorded in the first half of 2019.

In the first half of 2019, the lender recorded a loan book growth of 1.4%, whereas industry average stood at 1.0% and deposits during the H1FY19 grew by 1.1% against the average industry growth of 1%. RBS recorded decent growth in advances and deposits, even though it went through many turbulences during the period under consideration.

RBS Share price performance

Daily Chart as at August-30-19, before the market close (Source: Thomson Reuters)

On August 30, 2019, at the time of writing (before the market close, at 02:34 PM GMT), RBS shares were trading at GBX 185.95, up by 1.36 per cent against the previous day’s closing price. Stock’s 52 weeks High and Low are GBX 250.33/GBX 176.55. The group’s stock is reflecting lower volatility as against the benchmark index based on the company’s beta of 0.83. The company’s M-cap (market capitalisation) was recorded at £22.18 billion at the time of writing.

In the last month, RBS shares have generated a negative return of 14.92 per cent. The company’s stock plunged by 7.27 per cent from the beginning of the year to till date. The company’s stock has delivered a negative return of 18.12 per cent in the last year. 

At the time of writing, the stock’s volume traded before the market close was hovering around 4,667,491. Stock’s average traded volume for 5 days was 14,128,858.80; 30 days- 16,667,982.77 and 90 days – 13,915,788.53.