Lloyds share price crawled higher today as investors braced for a blockbuster statement by management on Thursday.
Lloyds bank earnings watched
Lloyds bank will release its first quarter financial results on Thursday. These will be the most challenging results for the troubled UK lender because of the challenging situation in the UK.
In the first quarter of 2019, the bank reported a statutory profit after tax of more than 1.2 billion pounds. This was a 2% gain from the previous year. In the same quarter, the bank’s return on tangible equity was about 12.5%.
This year’s quarter will be challenging because most people are staying at home. Most people have also been laid-off during the pandemic and are therefore not spending. The housing market has also been suspended, which has affected its revenue.
A quick look at other banks show how dire the performance of Lloyds bank will be. Today, HSBC said that its first quarter profit dropped by almost half to $3.23 billion. This was lower than the $3.67 billion that analysts were expecting.
In Spain, Banco Santander said that its net profit declined by 82% in the first quarter as it allocated more money to provisions. Just last week, Credit Suisse said that it had allocated millions of dollars in provisions even as its net income rose. The same trend was seen in the United States, where big banks like Morgan Stanley, JP Morgan, and Bank of America allocated billions to provisions. In total, Santander, HSBC, and UBS have allocated more than $4.2 billion, $3 billion, and $268 million in provisions.
Lloyds coming from a point of weakness
The challenge for Lloyds is that it is coming from a point of weakness. This can easily be seen on the bank’s share price, which are languishing near the lowest level since 2012. In 2019, the bank’s profit before tax declined by 26% to 4.39 billion pounds. Its underlying profit declined to 7.5 billion pounds while its EPS dropped to 3.5p. At the same time, its tangible equity dropped to 7.8%.
Just last month, Fitch announced that it was revising the bank’s outlook to negative. In the report, the agency said:
“We believe that the economic and financial market fallout from the pandemic creates some downside risks to our assessment of LBG’s earnings and asset quality, given the heightened risk of increased impairments, including in more vulnerable asset classes such as credit cards and auto lending, and margin pressure from reduced base rates.”
On the daily chart, we see that Lloyds share price is a few inches above its YTD low of 27.70. The price has also been consolidating in the past few weeks. By so doing, the pair has formed a bearish pennant pattern, which is a sign that it could resume the downward trend. This means that the share price could accelerate the downward trend could continue and see the price move below the YTD low of 27.70.
This bearish trend will likely be invalidated if the share price moves above 38, which is the confluence of the 23.6% Fibonacci retracement and the 50-day EMA.