Banks under pressure

Good afternoon. This is your midday market update from City AM.

HSBC finds itself at the bottom of the FTSE 100 league table today.

The stock was down more than seven percent by mid-morning, the bank’s worst intraday share price fall in more than a year.

That amounts to a whopping £16bn wiped from the firm’s market value, and means it has eroded almost all the gains it made earlier in the year.

In September, HSBC was briefly the best-performing stock of recent months among the top-four listed British banks – comprising Lloyds, Natwest and Barclays. After today’s sell-off, it’s slumped to last place.

HSBC’s performance was far from terrible. The company reported a 32 per cent jump in pre-tax profit to $9.6bn (£7.2bn) in the third quarter, while interesting income stood at $11.9bn.

But both figures fell short of the expectations set by the market, in signs banks’ ability to charm investors with ever-improving financials had run out of steam.

“In a high interest rate environment, there’s sometimes a market expectation that we upgrade guidances or we change our targets,” said chief financial officer Pam Kaur, in a nod to the depressed market response to the results.

“The numbers themselves are not disastrous,” said Will Howlett, financial analyst at Quilter Cheviot.

“The issue is that HSBC has set a high bar for itself. Following a strong run for the shares, investors have become accustomed to robust results, so even relatively modest misses can prompt a sharper reaction.”

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There may be more pain ahead for Britain’s biggest banks. John Healey is widely expected to increase taxes on banks at tomorrow’s Budget – likely the single-biggest revenue raiser he will announce at the dispatch box.

As our senior City reporter Sam Norman points out today, execs in Canary Wharf had been successful in sweet-talking Rachel Reeves out of pursuing her Labour instincts of squeezing more cash out of financial services. But these efforts appear to have fallen on deaf ears with her successor.

The most likely option is a reversal of the cut to the surcharge that banks pay on corporation tax that was introduced by Jeremy Hunt in 2023 – in other words, making banks pay more tax on their profits than the rest of the economy.

Would the move make UK banks uncompetitive? Tax expert Dan Neidle suggests Britain is not an outlier when it comes to the overall tax burden facing banks – the UK ranks higher than the US but below the likes of our European rivals Italy, France and Germany.

A modest increase in a profit tax is unlikely to trigger any bank pulling out of London. But, as one senior US banker put it to me earlier this month, what it can impact is future investment decisions – where or whether the firm opens a new business unit or recruits for a new team. That impact won’t be immediately felt, but over time it could weaken London’s lead in financial services.

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