Fines, Interest Rate Hike Set 2023 Tone as UK Big Four Cap Year

In this report, PYMNTS takes a look at the 2022 full-year performance of the U.K.’s “Big Four” banks — Barclays, HSBC, Lloyds and NatWest.

Barclays

Barclays started 2023 on a rough note, announcing a 15% year-over-year (YoY) drop in profit to $7.2 billion in 2022, caused partly by about $1.9 billion spent in litigation costs and fines last year. In comparison, that cost category amounted to just £176 million the year prior.

Most notable among those charges was the over-issuance of U.S. securities to the tune of $17.6 billion, which resulted in a $361 million penalty paid to the Securities and Exchange Commission (SEC).

“This case highlights why it is essential for firms like Barclays to have robust internal controls over their offers and sales of securities,” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said at the time.

The decline in profits in Barclays’ full-year earnings report  was also tied to about £1.3 billion required to buy back oversold securities in the U.S., as well as SEC-imposed penalties amounting to an estimated £165 million during that same period.

And that’s not all. The financial institution was slapped with another $200 million fine pertaining to a U.S. regulatory investigation into the noncompliant use of messaging groups like WhatsApp — an investigation impacting several other major banking groups.

HSBC

Unlike Barclays, HSBC’s profit before tax fell by just $1.4 billion to $17.5 billion in 2022, while its revenue for last year increased by 4% to $51.7 billion.

“2022 was another good year for HSBC. We are on track to deliver higher returns in 2023 and have built a platform for further value creation, the London-based banking giant stated in an earnings report released this week.

The FI attributed the significant profit jump to “strong reported revenue growth and lower reported operating expenses.”

On the downside, however, customer lending balances fell by $121 billion, while assets held for the planned sale of its retail banking operations in France and banking business in Canada also ran into a double-digit billion range.

Overall, however, the lender said its outlook remains positive as it pinned its hopes on higher interest rates — which hurt borrowers but benefit lenders — to keep profits up this year, with net interest income projected to hit at least $36 billion in 2023.

NatWest

Still on interest rates, leading U.K. bank NatWest recently said that it believes that interest rates in the country have reached their peak. The FI added that it expects the Bank of England base rate, which has risen from 0.1% and is now at 4%, to peak at that same rate in Q1 this year, before it starts dropping around the first and second quarters of 2024.

That assessment, made as the lender reported its annual results for 2022 in a Friday (Feb. 17) presentation, also revealed a profit of £5.1 billion (about $6.1 billion) in 2022, up from £3.8 billion (about $4.6 billion) the year prior.

“In a difficult macroeconomic environment, our strong customer franchise, disciplined risk management and robust balance sheet mean we are well positioned to support our customers,” NatWest CEO Alison Rose said in the report.

In order to meet its 2022 “purpose-led” objectives, the bank said it engaged in “expense and investment discipline” which led to about 3% reduction in yearly cost, while investing £1 billion pounds — an annual target between 2021 and 2023 — in its ongoing digital transformation efforts.

Lloyds

In an earnings report published Wednesday (Feb. 22), Lloyds reported a “robust financial performance driving increased capital returns” with profit before tax in 2022 same as 2021 (£6.9 billion), while profit before impairment jumped 46% to reach £9 billion in the year — a spike Lloyds attributed to a 14% increase in net income growth of £18 billion.

In August, the U.K. lender reported completing the U.K.’s first digital promissory note purchase as part of efforts to digitize its processes.

“With this successful U.K.-first transaction, we have delivered an innovative digital solution that is quicker, less expensive and more secure,” the FI said at the time, adding that the move “opens this form of payment discounting to potentially millions of small businesses, improving their ability to manage their working capital and the cash flow of their suppliers by fulfilling invoices more quickly.”

Prior to that in July, CEO Charlie Nunn told Bloomberg that it was considering acquiring more FinTechs to boost its digital capabilities, per a PYMNTS report.

According to Nunn, any deal they explore would need to add to the company’s core business of building digital offerings “in a way no FinTech can.”

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