Meaningless setbacks ?

According to the management, the quarterly counter-performance will not derail the group’s profitability recovery thus contradicting the market’s sanguine reaction.

New buybacks signal high visibility

The group posted a good set of results showing margin resilience, good business momentum in the non-lending activities and benign asset quality trends. The new share buyback despite the lack of excess capital signals high visibility on the future improvement in profitability.

UK Banks - Strong performance continues

Pending profitability upgrade ?

The management marginally upgraded its revenue guidance driven by stronger non-interest income, notably trading income. It cautiously kept its RoTE target unchanged, but we understand the risk to be on the upside.

Undemanding profitability upgrade despite the M&A noise

The fourth-quarter results did not beat the market’s expectations. However, this did not prevent the management from slightly upgrading its mid-term profitability objectives. Although they remain undemanding, they are yet to be fully factored into the stock’s valuation. M&A noise should be supportive.

Half full or empty bottle?

FAB’s abandonment of a potential bid for STAN likely confirms that this is not a prey easy to swallow thus limiting any speculative appeal. On the other hand, FAB’s interest signals there could be long-term value. So far, investors want to see the bottle as being half full.

Strong trading gains, but wiped out at the equity level

The group posted significantly stronger than expected third quarter profits. However, the earnings surprise was supported by ongoing particularly strong trading income generation with no impact on equity generation as reported earnings were fully wiped out by negative equity adjustments.

Unchanged mid-term objective

The quarter showed a net interest margin recovery but subdued fee income generation. Last but not least, the management marginally increased its cost of risk guidance thereby signalling a more cautious stance while falling short of a warning. Hence, the management did not upgrade its mid-term guidance.

Commodity and interest rate boost

The quarter enjoyed record revenue generation supported by commodity price volatility and higher interest rates. This enabled the management to slightly upgrade its full-year guidance and to announce that its 10% objective could be met before 2024.

Waiting for interest rates rescue

The group posted an unexpected quarterly loss and proposes a lower-than-expected dividend. Its updated three-year business plan remains uninspiring with an unambitious RoTE recovery largely reliant on interest rates hikes.

Poor capital generation

The third quarter showed strong efficiency gains despite ongoing subdued revenue generation. Management remains confident that the top line will expand by at least 5% as soon as next year, which should support profitability recovery as the cost base will continue to enjoy restructuring efforts.

Accelerated provision releases

The quarter enjoyed accelerated provision releases whereas the pre-provision performance came in line with expectations. Management reiterated its short and mid-term guidance.

Provision releases offset by negative equity adjustments

Asset quality trends and fee income generation are back to pre-crisis levels. However, further efforts are needed to raise the profitability to market standards. Without the help of interest rate hikes, this remains a distant perspective.

Profitability normalisation remains a distant objective

The group posted a mixed set of results, showing a net interest margin recovery but also subdued capital market revenues. Without the help of significant interest rate hikes, the return to decent profitability levels remains a distant perspective as confirmed by management’s 7% RoTE target for 2023.

Morning Note – 22 April 2024

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Business as usual for WTAN’s executive team, while the board reviews investment management arrangements…

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