- HSBC swallowed increased provisions for sour loans in its Q1 results
- Management announces unchanged dividend and no word on new buyback
- Analysts still think the sector is ready to generate record earnings in 2026
- Higher valuations and higher expectations raise the bar, however
- Pause in buybacks at NatWest and HSBC may also be a factor in bank sector’s loss of share price momentum
“The FTSE 350 Banks index is just about flat for the year and HSBC’s mixed set of first-quarter results are not offering much by way of fresh momentum, as good news from better-than-expected net interest income is offset by higher loan losses, while the dividend is unchanged and there is no news on a fresh share buyback," says AJ Bell investment director Russ Mould.
“That creates a mixed picture up to the first three months of the year for the FTSE 100 lenders, as Lloyds and Standard Chartered beat forecasts, NatWest and Barclays met them and HSBC undershot.
Source: Company accounts, company investor relations websites, analysts’ consensus forecasts
“Aggregate first-quarter pre-tax income across the Big Five still just exceeded forecasts overall and came in marginally above the total recorded in the first three months of 2025.
Source: Company accounts for Barclays, HSBC, Lloyds, NatWest and Standard Chartered
“However, Q1 2024’s total was better to the tune of more than £1 billion, and Q1 2023 was higher again, although that period did benefit from a substantial gain on disposal at HSBC.
“Net interest income and net interest margins have held up well; investment banking divisions have thrived amid wider market volatility and wealth management operations have been as consistent as ever.
Source: Company accounts
“Litigation and conduct costs were modest in the first quarter, too, as if to suggest the lenders have weathered the worst of the car finance storm, based on the provisions taken, where necessary, and the Financial Conduct Authority’s final ruling on compensation.
Source: Company accounts for Barclays, HSBC, Lloyds, NatWest and Standard Chartered
“The primary source of concern amongst analysts, though, is the increase in loan impairment losses, where HSBC is nudging up its forecasts for 2026, to negate the benefit of higher net interest income, after a $450 million year-on-year increase in write-downs compared to the first three months of 2025.
Source: Company accounts for Barclays, HSBC, Lloyds, NatWest and Standard Chartered
“HSBC cited a fraud relating to a collapsed British mortgage lender and precautionary provisions in light of the war in the Middle East to explain both the higher costs in the first quarter and the marginally gloomier outlook for the rest of this year.
“Chief executive Georges Elhedery and the board now expect bad loans to represent some 0.45% of the total average gross loan book for 2026, up from the prior forecast of 0.40% and the 0.39% recorded in 2025. On a loan book of $1 trillion, even the tiniest change in the loan impairment ratio can quickly affect earnings, up or down.
Source: Company accounts
“All of this means that the Big Five are still off to a strong start in 2026, as the profits are still rolling in, and at a sufficient level to still justify analysts’ forecasts of new record annual earnings both this year and next, pending any unexpected deterioration in the macroeconomic or geopolitical outlook.
“Analysts think their combined pre-tax income for the year will come to £58.2 billion, a healthy increase in 2025’s £50.7 billion and a figure that easily exceeds the pre-crisis peak of £35.8 billion in 2007.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts for Barclays, HSBC, Lloyds, NatWest and Standard Chartered
“But there are still three challenges which may explain why the FTSE 350 Banks sector is not performing as strongly as in the early stages of this decade, and why the price change for the index features what some technical analysts may fear is an ugly-looking triple-top pattern.
Source: LSEG Refinitiv data
“The first is that earnings are no longer surprising on the upside to the same extent, if at all.
“The second is that post-lockdown economic rebound is well and truly over, as interest rates are now higher, and the outlook feels less certain.
“The third and final challenge is how valuations are just higher, thanks to the lenders’ strong share price performance of the past five years, while leaves the FTSE 350 Banks sector up by 164%, to rank it second out of the thirty-eight industrial groupings which comprise the FTSE 350 and trailing on Aerospace & Defence’s 504% surge.
“Five years ago, all the Big Five banks traded on comfortably less than tangible net asset, or book, value per share. That is no longer the case and all trade at par or higher.
“That is easy to justify given their current double-digit percentage returns on tangible equity and the prospect of future growth in book value that this implies.
Source: Company accounts
“But the higher valuations also mean there is more downside risk should anything unexpected go wrong.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts, London Stock Exchange data.
“Equally, the prospect of robust cash returns may be enough to keep income seekers happy, even if some investors may feel the prospect of bumper capital gains is now more limited and the 10-year gilt yield is offering more competition as it hovers around the 5% mark.
“Barclays, NatWest, Lloyds and Standard Chartered continue to run share buyback schemes, although NatWest will then put any further schemes on hold following the £2.7 billion deal for wealth manager Evelyn Partners and HSBC is yet to restart its programme after the pause imposed when it bought the 37% stake of Hang Seng bank it did not already own for $13.6 billion.
“Consensus forecasts suggest that the Big Five will deliver a record combined dividend payment of £19.1 billion in 2026. Further buybacks announcements are required if the lenders are to match 2024’s record cash distribution via this mechanism of £17.6 billion.”
Source: Company accounts, Marketscreener, analysts’ consensus forecasts for Barclays, HSBC, Lloyds, NatWest and Standard Chartered. *Buybacks total as declared as of 5 May 2026.
