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| Crunch time for UK banks | Crunch time for UK banks |
| (about 16 hours later) | |
| By Victoria Trench Business reporter, BBC News | By Victoria Trench Business reporter, BBC News |
| This week's results should shed light on whether banks are recovering | This week's results should shed light on whether banks are recovering |
| Exactly two years after the credit crisis first shook the banking world, UK banks are back in the spotlight this week when they report profits for the first half of the year. | Exactly two years after the credit crisis first shook the banking world, UK banks are back in the spotlight this week when they report profits for the first half of the year. |
| There will be some cheer from heady trading gains in investment banking divisions, but the long-term picture is not as rosy. | There will be some cheer from heady trading gains in investment banking divisions, but the long-term picture is not as rosy. |
| Bad mortgage and corporate loans continue to pile up, dampening hopes for a quick recovery, experts say. | Bad mortgage and corporate loans continue to pile up, dampening hopes for a quick recovery, experts say. |
| In Europe, Deutsche Bank's chief executive Josef Ackermann warns banks are not out of the woods just yet. | In Europe, Deutsche Bank's chief executive Josef Ackermann warns banks are not out of the woods just yet. |
| "Bad loans are the next wave. Banks that have fared relatively well so far will also be affected by this," he said. | "Bad loans are the next wave. Banks that have fared relatively well so far will also be affected by this," he said. |
| So how have the UK's big five fared? | So how have the UK's big five fared? |
| Barclays | Barclays |
| HSBC | HSBC |
| Northern Rock | Northern Rock |
| Lloyds Banking Group | Lloyds Banking Group |
| Royal Bank of Scotland | Royal Bank of Scotland |
| BARCLAYS | BARCLAYS |
| Barclays has not taken any money from the government during the crisis | Barclays has not taken any money from the government during the crisis |
| The first of the UK's big five to publish results and could well emerge with the strongest numbers. | The first of the UK's big five to publish results and could well emerge with the strongest numbers. |
| Pre-tax profit is predicted by analysts to be up 31% from the previous year, at £3.6bn. | Pre-tax profit is predicted by analysts to be up 31% from the previous year, at £3.6bn. |
| Like US banks that have recently reported impressive earnings, the trading operations of investment banking division, Barclays Capital - including the collapsed former Lehman Brothers US business it bought last year - will have benefited from high levels of activity. | Like US banks that have recently reported impressive earnings, the trading operations of investment banking division, Barclays Capital - including the collapsed former Lehman Brothers US business it bought last year - will have benefited from high levels of activity. |
| But the sustainability of revenue growth is the main concern for many analysts. | But the sustainability of revenue growth is the main concern for many analysts. |
| Analysts at Royal Bank of Canada fear Barclays will take on too much risk and "stray from the path of capital righteousness." | Analysts at Royal Bank of Canada fear Barclays will take on too much risk and "stray from the path of capital righteousness." |
| JP Morgan prefers the bank to the others, but fears it may need to come up with £12.8bn in additional capital by the end of next year to meet potential regulatory changes. There are also fears amongst analysts of more writedowns related to the commercial real estate sector. | JP Morgan prefers the bank to the others, but fears it may need to come up with £12.8bn in additional capital by the end of next year to meet potential regulatory changes. There are also fears amongst analysts of more writedowns related to the commercial real estate sector. |
| The bank raised £7bn from investors in Qatar and Abu Dhabi last year after turning down financial help from the UK government during the economic crisis. | The bank raised £7bn from investors in Qatar and Abu Dhabi last year after turning down financial help from the UK government during the economic crisis. |
| It has also has chosen not to participate in the Treasury's asset protection scheme, which insures against losses arising from toxic assets. | It has also has chosen not to participate in the Treasury's asset protection scheme, which insures against losses arising from toxic assets. |
| Shareholders vote 6 August on the proposed £8.2bn sale of Barclays Global Investors to BlackRock. The deal promises a net gain of £5.3bn and is expected to complete by December. | Shareholders vote 6 August on the proposed £8.2bn sale of Barclays Global Investors to BlackRock. The deal promises a net gain of £5.3bn and is expected to complete by December. |
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| HSBC | HSBC |
| HSBC is the world's third largest bank by market value | HSBC is the world's third largest bank by market value |
| Predictions for the banking giant HSBC remain sketchy. | Predictions for the banking giant HSBC remain sketchy. |
| Although investment banking has been strong for the group, fewer fees have been generated by consumer lending. | Although investment banking has been strong for the group, fewer fees have been generated by consumer lending. |
| In addition, one-off gains and charges on the value of the bank's own debt and accounting treatment of the bank's recent record rights issue could swing the final number into a profit or a loss. | In addition, one-off gains and charges on the value of the bank's own debt and accounting treatment of the bank's recent record rights issue could swing the final number into a profit or a loss. |
| Keefe, Bruyette & Woods forecasts a $1.45bn pre-tax profit for the six-month period. | Keefe, Bruyette & Woods forecasts a $1.45bn pre-tax profit for the six-month period. |
| The bank raised £12.5bn from shareholders through a rights issue earlier this year, after saying that it would not require capital support from the UK Treasury even if economic conditions in the UK or the US were to worsen. | The bank raised £12.5bn from shareholders through a rights issue earlier this year, after saying that it would not require capital support from the UK Treasury even if economic conditions in the UK or the US were to worsen. |
| HSBC has kept its ranking as the world's third-largest bank by market value after emerging from the global credit freeze healthier than UK competitors Royal Bank of Scotland and Lloyds Banking Group, which had to be bailed out by the government. | HSBC has kept its ranking as the world's third-largest bank by market value after emerging from the global credit freeze healthier than UK competitors Royal Bank of Scotland and Lloyds Banking Group, which had to be bailed out by the government. |
| HSBC lends 82 pence for every pound it takes in deposits, compared with 150 pence at Royal Bank of Scotland. | HSBC lends 82 pence for every pound it takes in deposits, compared with 150 pence at Royal Bank of Scotland. |
| Analysts will be looking for any signs of improvement in its US consumer finance business. | Analysts will be looking for any signs of improvement in its US consumer finance business. |
| In March, HSBC said operating performance was "encouraging" and that loan impairments in its troubled US consumer lending business were lower than in the last quarter of 2008. | In March, HSBC said operating performance was "encouraging" and that loan impairments in its troubled US consumer lending business were lower than in the last quarter of 2008. |
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| NORTHERN ROCK | NORTHERN ROCK |
| Northern Rock was nationalised in 2008 | Northern Rock was nationalised in 2008 |
| Nationalised lender, Northern Rock, is expected to post a loss, as difficult conditions in the mortgage and housing markets prevail. | Nationalised lender, Northern Rock, is expected to post a loss, as difficult conditions in the mortgage and housing markets prevail. |
| The bank was nationalised in February 2008 after becoming the first UK bank since the 1860s to experience a run following its exposure to the credit crunch. | The bank was nationalised in February 2008 after becoming the first UK bank since the 1860s to experience a run following its exposure to the credit crunch. |
| The Treasury and Bank of England stepped in to provide emergency funding and guarantee depositors' funds, while a business plan was implemented to rebuild the company. | The Treasury and Bank of England stepped in to provide emergency funding and guarantee depositors' funds, while a business plan was implemented to rebuild the company. |
| Prime Minister Gordon Brown's hopes of selling off Northern Rock before the general election were dealt a blow last month when John Kingman, the man in charge of the public's holding in the bank resigned. | Prime Minister Gordon Brown's hopes of selling off Northern Rock before the general election were dealt a blow last month when John Kingman, the man in charge of the public's holding in the bank resigned. |
| Other problems could resurface for the lender: | Other problems could resurface for the lender: |
| SRM Global, the hedge fund that was the largest shareholder in Northern Rock owning 11.5%, has vowed to continue its fight for government compensation after losing its second legal challenge. | SRM Global, the hedge fund that was the largest shareholder in Northern Rock owning 11.5%, has vowed to continue its fight for government compensation after losing its second legal challenge. |
| It claims the Treasury's compensation plan valuing former shareholders stakes at "close to zero" is "unlawful and unfair". | It claims the Treasury's compensation plan valuing former shareholders stakes at "close to zero" is "unlawful and unfair". |
| RAB Special Situations, another hedge fund, and around 200,000 small shareholders in Northern Rock are also backing the fight. | RAB Special Situations, another hedge fund, and around 200,000 small shareholders in Northern Rock are also backing the fight. |
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| LLOYDS BANKING GROUP | LLOYDS BANKING GROUP |
| The UK government owns 43% of Lloyds Banking Group | The UK government owns 43% of Lloyds Banking Group |
| Loan impairments will likely dominate the coverage of Lloyds's first set of interim results for the new group, dragging the company into a predicted loss of £5.1bn. | Loan impairments will likely dominate the coverage of Lloyds's first set of interim results for the new group, dragging the company into a predicted loss of £5.1bn. |
| The group was created in January from Lloyds TSB's takeover of HBOS. | The group was created in January from Lloyds TSB's takeover of HBOS. |
| In May, Lloyds warned that full-year corporate bad debt should be around 50% higher than in 2008 - at roughly £14 bn. This is four times the level of just a year ago. | In May, Lloyds warned that full-year corporate bad debt should be around 50% higher than in 2008 - at roughly £14 bn. This is four times the level of just a year ago. |
| This is a result of UK and Irish commercial property plummeting in value and putting developers out of business. | This is a result of UK and Irish commercial property plummeting in value and putting developers out of business. |
| The bank is taking out insurance from the UK government, which owns 43.5%, to protect itself from losses on a £250bn loan portfolio, but it has to cover the first £25bn itself. | The bank is taking out insurance from the UK government, which owns 43.5%, to protect itself from losses on a £250bn loan portfolio, but it has to cover the first £25bn itself. |
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| ROYAL BANK OF SCOTLAND | ROYAL BANK OF SCOTLAND |
| The UK government owns a 70% stake in RBS | The UK government owns a 70% stake in RBS |
| RBS may also benefit from gains in its investment banking activities, but it is less focused on trading stocks and shares, which means it won't have done as well as those with big equity trading franchises, such as Barclays. | RBS may also benefit from gains in its investment banking activities, but it is less focused on trading stocks and shares, which means it won't have done as well as those with big equity trading franchises, such as Barclays. |
| RBS will benefit from the sale of its stake in Bank of China and its Spanish insurance joint venture. | RBS will benefit from the sale of its stake in Bank of China and its Spanish insurance joint venture. |
| Morgan Stanley expects a £1.5bn pretax profit, after £5.43bn in provisions for bad and doubtful debts. | Morgan Stanley expects a £1.5bn pretax profit, after £5.43bn in provisions for bad and doubtful debts. |
| The bank has said it will take three to five years to rebuild shareholder value, which may sound like a long time to UK households given that they own 70% of the bank via a government stake. | The bank has said it will take three to five years to rebuild shareholder value, which may sound like a long time to UK households given that they own 70% of the bank via a government stake. |
| In February, the banking group revealed the biggest British annual corporate loss in history of £24.1bn for 2008. | In February, the banking group revealed the biggest British annual corporate loss in history of £24.1bn for 2008. |
| Both RBS and Lloyds are expected to provide an update on talks with the government over how much they must pay to join a scheme under which the taxpayer will absorb a proportion of any further losses on risky credit assets they hold. | Both RBS and Lloyds are expected to provide an update on talks with the government over how much they must pay to join a scheme under which the taxpayer will absorb a proportion of any further losses on risky credit assets they hold. |
| Analysts say the final terms of the asset protection scheme, which will cover £325bn of RBS's toxic assets and £250bn of Lloyds's, will have a critical influence on the banks' future exposure to bad debt. | Analysts say the final terms of the asset protection scheme, which will cover £325bn of RBS's toxic assets and £250bn of Lloyds's, will have a critical influence on the banks' future exposure to bad debt. |
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