UK banks are starting to report fourth-quarter 2025 financial results, with Lloyds Banking Group PLC (LON:LLOY) leading the earnings calendar on Thursday. Market participants are scrutinising whether lenders can convert recent hedge-driven gains into durable growth, and whether meeting consensus numbers will be enough to underpin confidence after a sector-wide re-rating.
In a preview of the reporting season, UBS said it retains a constructive stance on UK banks even after the group outperformed expectations last year. The brokerage highlighted that investor positioning is heavily overweight in certain names - notably Barclays PLC (LON:BARC), Lloyds and NatWest Group PLC (LON:NWG) - a stance fuelled by tailwinds from hedging activity and discounts reflected in price-to-earnings ratios.
UBS noted that strategic updates from some lenders could help validate growth assumptions, specifically pointing to Barclays and NatWest as potential sources of reassurance. At the same time, the firm warned that investors will be sensitive to any indications of relaxed price discipline among banks, which could undermine margin outlooks.
Internationally focused banks HSBC Holdings PLC (LON:HSBA) and Standard Chartered PLC (LON:STAN) have each appreciated by roughly 20% over the last three months, drawing investor attention to medium-term expansion in wealth management. UBS singled out wealth management as an area that may deliver faster earnings growth and improved returns on tangible equity (ROTE) over the medium term.
On Thursday, Lloyds disclosed a 12% rise in annual profit for 2025, surpassing analysts' expectations even after provisioning almost bn related to compensation for mis-sold motor finance products. The lender's profit before tax climbed to 7 billion, up from 9.97 billion the prior year, exceeding an average analyst forecast of 4 billion. Alongside the results, Lloyds lifted its profitability ambitions, now targeting a return on tangible equity above 16% in 2026, a marked increase from its earlier 12% goal set for 2025.
Following Lloyds' announcement, the reporting schedule for several other UK banks is set: Barclays will report on February 10, NatWest on February 13, Standard Chartered on February 24 and HSBC on February 25. Shawbrook Group PLC (LON:SHAW) is scheduled to publish its first full-year results since its initial public offering on March 12.
UBS continues to favour UK bank exposure, with a tilt toward lower price-to-earnings stocks including Barclays, NatWest and Standard Chartered. The brokerage's outlook reflects a view that current valuations and hedge effects make these names attractive relative to peers.
The report also laid out an ongoing debate among investors about the comparative merits of NatWest and Lloyds. Lloyds is trading at about 9.8x earnings versus NatWest at roughly 8.5x, and some market participants argue NatWest needs to present a more compelling growth narrative beyond hedge-derived benefits to justify further re-rating.
Capital adequacy is another theme UBS expects to dominate conversations. The bank anticipates investor pressure on lenders to move capital ratios toward approximately 13%, echoing Lloyds' guidance for fiscal year 2026. Additionally, UBS flagged bolt-on mergers and acquisitions as a key theme for 2026, suggesting targeted deals could form part of banks' strategic responses to growth and capital expectations.
Contextual note: The UBS preview and the reported figures from Lloyds form the basis of market expectations and investor focus as this reporting season unfolds. No additional data or forecasts are introduced beyond those included in the banks' disclosures and the UBS commentary.