Britain’s biggest banks boost profit targets amid strong performance

Britain’s biggest banks are getting ready to announce better profitability forecasts when they release their yearly financial results over the next few weeks, according to sources with knowledge of the situation.

HSBC plans to increase its return on tangible equity forecast beyond its present guidance of “mid teens or better,” two sources revealed. NatWest intends to boost its 2027 projection from the current 15% to possibly 17%, the sources added.

Analysts predict significant target increases

Barclays, which stated in October that it planned to attain 12% or higher ROTE by 2026, is also ready to improve its predictions, according to a third source familiar with the bank.

Financial analysts predict both Barclays and HSBC could raise their aims by up to 200 basis points when they outline their strategies for the following years. Barclays will report earnings on February 10, while HSBC will do so on February 25.

Across continental Europe, many banks have already raised their profitability targets, indicating that they believe favorable interest rate conditions will persist for many years.

When banks set higher profitability goals, it shows they expect ongoing benefits from favorable interest rate environments and steady growth in lending and fee-based revenue. But setting ambitious targets carries some risks and may leave shareholders disappointed if economic conditions weaken.

Analysts at Jefferies said earlier this month that Lloyds Banking Group might also increase its targets this year, potentially aiming for an ROTE reaching 18.5% by 2028, compared to this year’s objective of above 15%.

All the banks mentioned refused to provide statements on the matter.

Peter Rothwell, who leads the banking division at KPMG UK, explained the situation: “UK banks have benefited from earnings resilience lasting longer than initially expected, supported by higher interest rates, robust credit quality, and tighter cost control.”

The European banking sector’s earnings season begins Thursday, when Lloyds and Deutsche Bank report their full-year results, following Wall Street banks’ stellar performance numbers.

Following years of low profitability and lackluster stock performance in the aftermath of the financial crisis, European banking shares have grown dramatically. The sector’s worth has more than doubled since early 2024, and it has risen 60% in the last year, outpacing American banks.

European rivals set ambitious profitability goals

Among European competitors, Spanish banks Santander and BBVA have managed to increase revenue while keeping costs under control, creating expectations for better target announcements.

Analysts at Barclays suggested Santander could target a 2028 ROTE around 19-20%, up from the 16.1% recorded as of September.

Deutsche Bank of Germany established a new 2028 ROTE target exceeding 13% back in November, higher than its 2025 goal of 10%. Experts anticipate Deutsche will confirm it met the 2025 target, alongside results that could show its biggest profit since 2007.

Volatile markets and increased corporate deal activity should also lift investment banking profits, helping institutions like Deutsche, Barclays, and UBS, after most Wall Street firms reported rising revenues and optimistic forecasts.

However, French banks such as Société Générale, BNP Paribas, and Crédit Agricole are unlikely to follow this favorable trend, as increasing expenses and domestic market competition are predicted to reduce profitability, according to analysts.

The coming weeks will determine if these British banking behemoths can meet market expectations and sustain the momentum that has propelled European banking equities to new highs in recent months.

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