Banks centre-stage in UK next week

Banks will be the centre of attention in the UK this week with trading updates and annual meetings from major players, while first-quarter figures from insurance giant Prudential will also be watched closely.

Banks will be the centre of attention in the UK this week with trading updates and annual meetings from major players, while first-quarter figures from insurance giant Prudential will also be watched closely.

The bank reporting season continues with the remaining firms delivering their first quarter figures, while Lloyds Banking Group also faces shareholders at its annual general meeting.

The Lloyds event in Edinburgh on Thursday comes after the group cheered investors with news that it had already returned to profitability in the first quarter of the year.

The group did not provide a profit figure, but news it clawed out of the red marked a significant turnaround on the £6.3bn (€7.2bn) losses reported for 2009 after the HBOS takeover and credit crunch left Lloyds with £24bn (€27.5bn) in bad debts.

This may see Lloyds receive some positive feedback from its shareholders, although focus is set to fall once more on executive pay – a running theme throughout the earnings season.

Pirc – a research and advisory consultancy that provides services to institutional investors – has warned the combined level of performance-related pay during 2009 was “excessive” and is recommending opposition against the Lloyds remuneration report at the meeting.

Barclays likewise attracted ire from Pirc ahead of its AGM. Its first quarter performance – with profits up 90% on an underlying basis to £1.82 billion - confirmed the bank’s position of strength, but Pirc believes the rewards to top bosses are potentially over the top.

Royal Bank of Scotland – which gives its first quarter update on Friday – has also come under fire over pay and performance targets, but said at its AGM it would review those linked to share price after it emerged some had already been met.

The group’s update follows increasing optimism in the market over its recovery plans, which has sent shares soaring above 50p.

Also on Friday, HSBC reports its figures amid expectations for further improvements in its bad debt charges.

It too is subject to criticism over executive pay, according to reports stating that major shareholders are angry at an £800,000 (€918,000) cash and benefit package for chief executive Michael Geoghegan’s relocation to Hong Kong.

HSBC reported a 56% rise in underlying 2009 profits to $13.3bn (€10bn) thanks largely to a 148% surge in profits for its investment banking arm, HSBC Global Banking and Markets.

Credit Suisse analysts believe there will be further improvements in profits in the first quarter as investment banking returns continue to pick up and as HSBC’s hit on loans turned sour reduces.

The prospect of flat like-for-like sales at high street stalwart Next is unlikely to cause too much of a stir when the firm updates on its recent performance on Wednesday.

Next has already said it is budgeting for same store sales ranging from 2.5% down to 0.5% up in the first six months of the current financial year.

But the fashion and homewares chain said even if annual sales were down 2% it still hopes to be able to grow profits by around £30m (€34m).

Analysts believe this resilience to the consumer environment gives Next a certain amount of protection from the vagaries of the economic and political winds blowing through the UK this year.

Confidence comes despite warnings from Next at its annual results in March that 2010 would be hard to predict ahead of the general election and due to the potential for tax rises as the Government seeks to bring down national debt.

“Given Next’s track record of meeting/beating guidance, we would expect them to deliver on this, driving an increase in our (full year) pre-tax profits forecast to £537 million,” analysts at Numis Securities said.

The group posted pre-tax profits of £505m (€579m) in the 12 months to January, up on the £428.8m (€492m) seen a year earlier.

Next enjoyed a resurgent performance in 2009 after it refocused the business to aggressively back new products and trends.

It made a series of profit upgrades throughout the year as sales continued to surprise on the upside, thanks also to improving consumer confidence and improvements in product ranges.

Insurance giant Prudential posts first quarter figures on Wednesday at a time when it continues to be swamped by speculation of shareholder rebellion against its mammoth bid for AIG’s Asian arm.

The latest rumour is that Pru’s biggest shareholder Capital Research & Management, which has a 12% stake, is trying to encourage a break-up of Pru and could vote against the planned $35.5bn (€27bn) takeover of AIA.

It is thought that Capital, a US investor, approached Pru’s rival Aviva about joining forces in a break-up bid, although Aviva reportedly turned down the chance.

The developments come as an unwelcome distraction for Pru as it prepares for the imminent launch of a prospectus for its record-breaking $20bn (€15bn) fundraising to finance the takeover.

It is also a further signal of discontent among investors over the size of the deal and money they are being asked to stump up.

While attentions are likely to focus once more on Pru’s battle to secure support for the deal, its first quarter figures are set to confirm the growth prospects in Asia.

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