UK banks’ earnings reports will be studied this week for signs of turmoil linked to Donald Trump’s tariff drama, with uncertainty over global growth likely to weigh on lenders with heavy exposure to China, including HSBC.
First-quarter profits only reflect the January-to-March period that preceded the US president’s “liberation day” tariff announcements on 2 April. But investors will be concerned about any hints of caution around earnings forecasts, as well as an uptick in money put aside for defaults by tariff-hit borrowers.
The issue is expected to divide UK lenders into two camps: those focused on domestic customers – notably NatWest and Lloyds Banking Group – and those with large operations in the US, China and the EU, which have been harder hit by Trump’s border taxes and retaliatory tariffs.
“Asia-focused banks are likely to be more impacted by tariffs than the domestics, given that is the region where tariffs will hit hardest, affecting credit demand, credit risk, client activity – for example wealth management – and also via changes to interest rates,” said Gary Greenwood, a banking analyst at Shore Capital.
That will put the spotlight on the likes of HSBC and Standard Chartered, which are due to report on Tuesday and Friday, respectively, and make the bulk of their profits in Asia. China has so far been slapped with a 145% total tariff on most goods and has retaliated with a 125% rate on US imports.
HSBC is expected to report a 38% fall in profits to $7.8bn (£5.8bn), with analysts saying the trade war would “overshadow tailwinds”, including strong fees from Asian wealth management operations and the first benefits of a £1.2bn cost-cutting drive due to finish by the end of 2026.
The lender is in the process of shutting some of its investment banking operations in the UK, US and Europe as part of a wider corporate shake-up under its chief executive, Georges Elhedery.
Investors will also be concerned about whether a weaker outlook might curb future dividends and share buy-backs. “It remains to be seen whether management feels such largesse is prudent in light of the ongoing macroeconomic uncertainties,” Russ Mould, investment director at AJ Bell, explained. HSBC is expected to put aside $868m for potential defaults, a 20% rise from the same period last year.
Barclays, which will release first-quarter results on Wednesday and has a sizeable US operation, could also face some risks. “The situation with Barclays is unclear,” Greenwood said. “Exposure to US consumer lending is a concern but the impact on the investment bank could be mixed, with the markets activity potentially benefiting from increased volatility albeit with this also proving detrimental to capital raising.”
By contrast, domestic banks are expected to be relatively insulated from the impact of the tariffs.
NatWest, which reports on Friday, is due to see first-quarter pre-tax profits rise 20% to £1.6bn. Profits are forecast to dip by 6% at Lloyds to £1.5bn for the first quarter. But both banks are expected to put aside far more for potential defaults by borrowers compared with last year, as the economic outlook weakens.
after newsletter promotion
In what are expected to be its last results before the government sells its final stake in the bailed-out bank, NatWest is forecast to put aside £169m for bad debts, up 81% from a year earlier.
Bad debt provisions at Lloyds are forecast to have quadrupled to £279m. Lloyds, which is also awaiting a supreme court ruling to determine payouts over the ongoing car loans commission scandal, will report on Thursday.
Benjamin Toms, a banking analyst at RBC Capital, said investors might still flee to UK banks. “To the extent there is a wall of investor money leaving US banks into European and UK financials, those banks with strong, established, domestic franchises could be beneficiaries of heightened investor interest,” he said.
Wall Street’s largest lender, JP Morgan, this month put aside $973m (£730m) in the first quarter to help protect the bank from potential defaults by its borrowers amid a worsening global economic picture.
