A first glance it looks as if banks have made a strong recovery since the financial crisis. However, during the past week alone,Standard Chartered(LSE: STAN),Barclays(LSE: BARC) andLloyds(LSE: LLOY) have all disappointed investors, showing that the banking industry is still far from a full recovery.
Lloyds was the first bank of disappoint this week. The results of the ECBs stress tests were released on Saturday and Lloyds performed worse than expected. Indeed, it was found thatafter a simulated three-year period of stress, the banks common equity Tier 1 capital ratio fell to 6.2%, only 0.7% above the required minimum of 5.5%.
Whats more, Lloyds capital position was actually found to be worse than that of state ownedRBS. While Lloyds management did point out that the ECBs test results were unreliable as they used last years figures, the numbers are still concerning.
Moreover, Lloyds still has to pass a separate stress test, set and conducted by the Bank of England, which will be based on current figures. However, the BoEs tests are rumoured to be tougher than those conducted by the ECB.
Unfortunately, if Lloyds fails to pass the BoEs tests, its unlikely that the bank will be allowed to reinstate its dividend payout, something investors have been eagerly awaiting for some time now.
It seems as if Lloyds is still far from making a full recovery.
Multiple profit warnings
After Lloyds, Standard Chartered was the next bank to disappoint. The Asia focused lender issuedyet another profit warning on Tuesday, reporting that profits had fallen 16% during the three months to September.
The bank blamed this poor performance on a rising volume of loan impairments. Bad loan impairments almost doubled during the quarter to $539m. As a result, the group is now looking to slash costs.
Management announced a $400m cost-cutting plan alongside results, put forward as aproof that it is acting to reverse a slide in its performance.
But there are now questions being asked about the state of Standards balance sheet. These are not new concerns, although the bank is now treading a fine line when it comes to the balance sheet as fines, bad loan impairments and a higher UK banking levy are all eating away at capital levels.
A mixed picture
As Lloyds and Standard disappointed, Barclays had a mixed week. The bank issued its interim management statement yesterday and on the whole, investors were impressed.
Even though business has slowed at the groups investment bank, a pickup in sales at commercial and retail banking, along with Barclaycards improving performance, helped the bank report a 5% gain in adjusted group profit before tax during the third quarter.
Unfortunately, these results were overshadowed by the fact that Barclayswas setting aside 500mas a provision for any fines stemming from its part in the global forex manipulation scandal a timely reminded that Barclays is still facing litigation around the world, for mistakes made over the past decade.
The bottom line
Lloyds, Standard and Barclays have all shown this week that despite the progress theyve made over the past few years, the mistake of the past continue to haunt them. These revelations have shown that the sectors definitely still in recovery mode.
Still, before youbefore you make any trading decision I strongly advise that you take a closer look at the banking sector.
To help you conduct your own analysis, our analysts here at the Motley Fool have put together thisfree reportentitled,”The Motley Fool’s Guide To Banking“.
Thefree reportguidesyou throughsix key ‘City insider’ valuation metricsfor each bank traded in London helping you to compare banks and make the best investment.
Thereport isfreeandwithout obligation. To get your copy,click here.
Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.