Budget Overhang Clouds UK Bank Earnings

Lloyds and NatWest report this week straight after a Budget that could hit them harder than any other UK lender.

Chancellor John Healey delivers his Budget on Wednesday, the day before Lloyds reports, with NatWest following on Friday. HSBC set a nervous tone for the sector on Tuesday, falling around 7% in early trade after its revenue missed forecasts.

Budget Tax Threat Hangs Over Domestic Lenders

The biggest swing factor for Lloyds and NatWest this week may come from Westminster rather than their own numbers.

Healey is reportedly considering raising the bank surcharge from 3% to 8%, lifting the effective tax rate on bank profits from 28% to 33% and raising around £2bn a year. Because the surcharge applies to UK profits, Lloyds and NatWest, which earn almost all their money at home, are the most exposed, while Barclays and HSBC make most of their profits overseas.

Barclays CEO CS Venkatakrishnan has called a tax rise "bearable" for his bank, but Lloyds and NatWest shares have fallen around 6% and 8% respectively over the past month as the threat has built.

Results So Far Set a Cautious Tone

The first two UK bank reports of the season have shown that strong profits are no longer enough on their own.

Barclays lifted pre-tax profit 12% to £2.3bn last Thursday, but income of £7.4bn fell short of forecasts and the shares have barely moved since. HSBC's third-quarter pre-tax profit jumped 32% to $9.6bn on Tuesday, yet revenue missed estimates, partly due to slower growth in its wealth business, and the shares slid as a result.

Rates remain a tailwind for the domestic lenders, with the Bank of England holding Bank Rate at 3.75% and structural hedges continuing to lift margins as older, lower-yielding positions roll off.

Standard Chartered (STAN)

Standard Chartered has been riding a boom in its wealth and retail business, where second-quarter profit jumped 76%, and consensus expects third-quarter net profit to rise around 19% to $1.23bn. Like HSBC, it makes almost all its profit outside the UK, so a higher surcharge barely matters, but its exposure to the UAE and energy-importing Asian economies means investors will watch credit charges linked to the Iran conflict, which reached $234m in the first half.

Lloyds Banking Group (LLOY)

Lloyds' core business is in good shape, with net interest income up 10% in the first half, return on tangible equity climbing to 17.1% and a fresh £1bn buyback under way. As the most domestically focused of the big lenders it is the most exposed to a higher bank surcharge, while the FCA's motor finance compensation scheme remains on hold, with legal challenges not expected to be heard before December.

NatWest Group (NWG)

NatWest has been the sector's most consistent performer, beating profit forecasts in each of the last five quarters and raising its 2026 income guidance to around £17.9bn in July after completing its £2.7bn takeover of wealth manager Evelyn Partners. Like Lloyds, though, almost all of its profit comes from the UK, so a higher surcharge would bite harder, and the shares have dropped around 8% over the past month.