Lloyds Banking Group PLC

Lloyds Banking Group PLC (LON: LLOY) is a London, United Kingdom-based financial services company. It has several household names like Halifax, Lloyds Bank, Scottish Widows, and Bank of Scotland. The company provides a broad range of financial services and banking, focused on commercial and personal customers. The group’s main business is divided into several activities: commercial, retail and corporate banking, life, pensions and investment provision, and general insurance.

On 20^th February 2020, the company will announce the results for 2019.

Recent News
On 16^th December 2019, the group, together with six other financial institutions in the United Kingdom, has been subject to stress test for the financial year 2019 by the Bank of England (BoE). In 2019, the stress test scenario is widely the same as compared with the last two years. This scenario reflects an increase in the unemployment and interest rates, and a fall in GDP and property prices. After the stress test passed, the group CET1 ratio was 8.5%, and its leverage ratio was 4.3% as compared with the hurdle rates of 7.5% and 3.47%, respectively.  On 30^th September 2019, the company’s capital position stays robust. For the first nine months of the year, the company also continues to be strongly capital generative with 149 bps pre-PPI of the free capital build.

Financial Highlights (for the three months ended 30 September 2019)
Given the challenging businesses environment primarily on account of long-standing Brexit saga, the group’s Net Interest Income declined by 3% to £9,275.0m against £9,544.0m it reported in a year-over period. During the period under consideration, the group’s underlying profit was £6,016m against £6,303m recorded in the same period of the previous financial year, driven by lower net interest income earned and partially offset by lower total costs and higher impairment charges. However, statutory profit post-tax slumped substantially by 47% to £1,987.0m, primarily driven by a significant surge in the payment protection insurance provision, which stood at £2,450.0m against £550.0m reported in the year-over period.

Share Price Performance

Daily Chart as at December-18-19, before the market closed (Source: Thomson Reuters)

On 18th December 2019, Lloyds Banking Group PLC shares were trading at GBX 63 at the time of writing before the market close (at 1:42 PM GMT), down by 0.47% against the previous day closing price. Stock's 52 weeks High and Low are GBX 73.66/GBX 48.16.

Conclusion
In 2019 guidance, the net interest margin of 2.88% stood in line with prior guidance; operating costs now anticipated to be less than £7.9 bn ahead of prior guidance, and cost: income ratio to be lower than in 2018; net asset quality ratio of less than 30bps; and free capital build of 75bps post the PPI charge of 121bps.In 9M FY2019, the company has made robust strategic growth and provided strong financial performance in a very challenging external environment. The statutory result was substantially affected by the additional PPI charge in Q3 FY19. However, the company’s performance persists in showing the resilience of the client franchise and business model with a robust balance sheet. Although economic uncertainty may impact the industry in which the company operates, it stays well-positioned to support its clients. In spite of the severity of the stress test scenario, the company exceeds the leverage and capital hurdles after the application of management actions. Its shares are also in an uptrend, as traded well above its crucial short-term and long-term support levels of 50-day and 200-day simple moving averages, which is bullish technical measure.

Therefore, based on the above rationale, we have given a “Hold” recommendation at the current price of GBX 63 (as on December 18, 2019, before the market closed).

Barclays PLC

Barclays PLC (LON: BARC) is a London, United Kingdom-headquartered transatlantic Consumer, Corporate and Investment Bank which offers products and services across wealth management, credit cards, personal, corporate and investment banking, with a focus on increasing cash returns to shareholders and improving its return on tangible equity on a sustainable basis. The operations of the group are differentiated in three operating segments, namely Barclays UK, Barclays International and Head Office.

On 13^th February 2020, the company will announce the full year 2019 results.

Recent News
On 16^th December 2019, the company released the stress test outcomes for the United Kingdom banks by the Bank of England. With a minimum of 8.9 per cent transitional CET1 ratio, the company passed the stress test, taking account of tactical management actions comprising CRD IV distribution restrictions. Therefore, the company exceeded 8.1% of stress test hurdle rate.

Financial Highlights (for the third quarter ended 30^th September 2019)
The company’s profit before taxation (excluding litigation and conduct) for the third quarter of 2019 was recorded £3.3 billion in Q3 FY19as compared to £3.1 billion in the third quarter of 2018. In the third quarter of 2019, the company’s cost to income ratio stood at 62 per cent and remained flat against the Q3 FY18. In Barclays UK, the profit before taxation was £0.4 billion in the third quarter of 2019 as against £1.6 billion in the third quarter of 2018. For Payment Protection Insurance (PPI), the company also made an additional provision of £1.4 billion in Q3 FY19. By the end of Q3 FY19, the company’s tangible net asset value (TNAV) was reported at 274 pence per share.

Share Price Performance

Daily Chart as at December-18-19, before the market closed (Source: Thomson Reuters)

On 18th December 2019, Barclays PLC shares were trading at GBX 185.16 at the time of writing before the market close (at 2:17 PM GMT), down by 1.17% against the previous day closing price. Stock's 52 weeks High and Low are GBX 192.99/GBX 131.04.

Conclusion
For 2019 and 2020, the company expects more than 9% and 10% RoTE, respectively.However, given the current low-interest-rate environment and global macroeconomic uncertainty, it has become more challenging to achieve these targets, particularly with respect to 2020. On a sustainable basis, the company continues to enhance returns, while investing in key business growth initiatives and providing attractive capital returns to investors. It expects to reduce 2019 costs below the original target of £13.6 billion, reflecting the continued investment in the business. It aims to bring down CET1 ratio, targeted at around 13.5% at year-end. The Bank of England passed the stress test, which reflects a short-term downfall, but in the long term, the shares will be well-positioned.

Therefore, based on the above rationale, we have given a “Hold” recommendation at the current price of GBX 185.16 (as on December 18, 2019, before the market closed).

Royal Bank of Scotland Group PLC

Royal Bank of Scotland Group PLC (LON: RBS) is the United Kingdom’s fourth-largest banking group in terms of market capitalisation. It provides financial products and services to the customers in the UK and abroad markets. The company's operations are differentiated in four operating segments: Personal & Business Banking (PBB), Commercial & Private Banking (CPB), RBS International (RBSI), and NatWest Markets. The group is a member of the FTSE 100 index.
On 14^th February 2020, the company will announce the annual results of 2019.
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Recent News
On 16^th December 2019, the company announced the results of its 2019 stress test made by the Bank of England ("BoE"). This stress test applied a hypothetical adverse scenario to the company's balance sheet as at 31st December 2018 and compared the theoretical Tier 1 leverage ratio and Common Equity Tier 1 ("CET1") ratio positions of the Group before and after the effect of strategic management actions.

Financial Highlights (for the nine months ended 30 September 2019)
During the nine-months under consideration, the group’s net interest income was 7% below the year-over period to £6,010m, and non-interest income surged by 3.78% to £4,010m.The group’s performance in the third quarter of FY19 was lacklustre, as during the Q3FY19, it reported an attributable net loss to ordinary shareholders of £315m, mainly on account of a challenging quarter in NatWest Markets (NWM), as core income in this segment plunged by £147m or 44.4% to £184m. Also, net interest margin of the group slumped by 5bps to 1.97% in the Q3FY19 vs Q2 FY19, primarily because of contraction in the yield curve and competitive pressures in the mortgage business. However, the group's cost-to-income ratio during the nine-month ended as on September 30, 2019, declined to 67.5% against 69.1% reported in the year-over period. The group’s CET 1 ratio stood at 15.7% including a 50bps reduction related to PPI charge.

Share Price Performance

Daily Chart as at December-18-19, before the market closed (Source: Thomson Reuters)

On 18th December 2019, Royal Bank of Scotland Group PLC shares were trading at GBX 248.70 at the time of writing before the market close (at 2:56 PM GMT), down by 1.82% against the previous day closing price. Stock's 52 weeks High and Low are GBX 265/GBX 176.55.

Conclusion
Despite a challenging third quarter, the group's performance in the nine-months was moderate.The company has attained another clear pass in the BoE’s stress test. This stress test will provide assurance that the company could maintain to assist the UK economy and its customers, even in the very challenging economic conditions. This also shows the progress of the company. Also, at the current trading level, shares of RBS were in an uptrend as we saw in the stock performance. Also, the stock traded well above its 200-day simple moving average price.

Therefore, based on the above rationale, we have given a "Hold" recommendation at the current price of GBX 248.70 (as on December 18, 2019, before the market closed).

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