The market response to the start of the banks reporting season in the form of numbers from NatWest (NWG) (18 Feb) and HSBC (HSBA) (22 Feb), has been decidedly lukewarm.

Share prices in both banks drifted lower on results. This looks surprising given that NatWest’s results were ahead of consensus.

The group upgraded future guidance and announced a £750 million share buy-back. HSBC’s results were more mixed, coming in marginally below analysts’ expectations.

However, in a similar vein to NatWest, future guidance was more positive with the group’s 10% plus return on tangible equity being brought forward by a year to 2023.

The group also announced a $1 billion share buyback.

There are a number of factors which explain the muted share price response. Both banks have witnessed strong performance ahead of the results as markets price in a profit boost from higher interest rates.

HSBC shares have increased by 21% year to date and currently sit 4% below their 12-month high. Similarly NatWest shares currently sit 6% below their 12-month high.

NatWest’s now plans to reduce costs by 3% per year, versus a prior target of 4%. The change in guidance is equivalent to £200 million increase in costs and shows the company is not immune from inflationary pressures.

HSBC’s results highlighted the group’s exposure to Chinese commercial real estate which resulted in a $413 million impairment charge.

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