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Crunch time for UK banks Crunch time for UK banks
(about 10 hours later)
This week's results should shed light on whether banks are recoveringThis 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?
BarclaysBarclays
HSBCHSBC
Northern RockNorthern Rock
Lloyds Banking GroupLloyds Banking Group
Royal Bank of ScotlandRoyal Bank of Scotland
BARCLAYSBARCLAYS
Barclays has not taken any money from the government during the crisisBarclays has not taken any money from the government during the crisis
The first of the UK's big five to publish results, Barclays reported pre-tax profits of £2.98bn, up 8% on the £2.75bn it made in the first six months of 2008.The first of the UK's big five to publish results, Barclays reported pre-tax profits of £2.98bn, up 8% on the £2.75bn it made in the first six months of 2008.
However, analysts had predicted a higher figure of £3.6bn.However, analysts had predicted a higher figure of £3.6bn.
Like US banks that have recently reported impressive earnings, the trading operations of investment banking division, Barclays Capital (Barcap) - including the collapsed former Lehman Brothers US business it bought last year - 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 (Barcap) - including the collapsed former Lehman Brothers US business it bought last year - have benefited from high levels of activity.
Profits at Barcap doubled to more than £1bn.Profits at Barcap doubled to more than £1bn.
But profits at its UK retail banking division fell 61% to £268m, from £690m a year ago.But profits at its UK retail banking division fell 61% to £268m, from £690m a year ago.
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.
Richard Hunter, head of UK equities at Hargreaves Lansdown, says Barclays' decision to "go it alone" without government aid has served it well.Richard Hunter, head of UK equities at Hargreaves Lansdown, says Barclays' decision to "go it alone" without government aid has served it well.
"Investors are beginning to appreciate the progress Barclays has made and the consensus is that the shares are a cautious buy," he says."Investors are beginning to appreciate the progress Barclays has made and the consensus is that the shares are a cautious buy," he says.
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HSBCHSBC
HSBC is the world's third-largest bank by market valueHSBC is the world's third-largest bank by market value
Banking group HSBC reported pre-tax profits of $5bn (£2.98bn) in the first six months of 2009.Banking group HSBC reported pre-tax profits of $5bn (£2.98bn) in the first six months of 2009.
This was about half what it made in the same period a year earlier.This was about half what it made in the same period a year earlier.
Rising bad debts in the US, Europe and Asia forced it to write-off $13.9bn - largely from its US consumer lending businesses.Rising bad debts in the US, Europe and Asia forced it to write-off $13.9bn - largely from its US consumer lending businesses.
But it saw a record investment banking profits of $6.3bn during the first half of the year.But it saw a record investment banking profits of $6.3bn during the first half of the year.
BBC business editor Robert Peston said its profits were a story of "resilience in the face of extraordinary losses on loans".BBC business editor Robert Peston said its profits were a story of "resilience in the face of extraordinary losses on loans".
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, both of 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, both of which had to be bailed out by the government.
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NORTHERN ROCKNORTHERN ROCK
Northern Rock was nationalised in 2008Northern Rock was nationalised in 2008
Losses at nationalised bank Northern Rock have grown by 24% amid mounting losses on its mortgage loans.Losses at nationalised bank Northern Rock have grown by 24% amid mounting losses on its mortgage loans.
Losses at the bank totalled £724.2m in the first six months of 2009, compared with £585.4m in the first half of 2008.Losses at the bank totalled £724.2m in the first six months of 2009, compared with £585.4m in the first half of 2008.
The Newcastle-based lender said that 3.92% of its mortgage loans were more than three months in arrears, well above the national average of 2.39%.The Newcastle-based lender said that 3.92% of its mortgage loans were more than three months in arrears, well above the national average of 2.39%.
The first bank to seek emergency aid, it was nationalised in February 2008, and owes the government £10.9bn.The first bank to seek emergency aid, it was nationalised in February 2008, and owes the government £10.9bn.
It had to be bailed out by taxpayers in 2007, when its model of borrowing short-term funds from wholesale markets to lend to mortgage borrowers was hit by the credit crunch.It had to be bailed out by taxpayers in 2007, when its model of borrowing short-term funds from wholesale markets to lend to mortgage borrowers was hit by the credit crunch.
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LLOYDS BANKING GROUPLLOYDS BANKING GROUP
The UK government owns 43% of Lloyds Banking GroupThe 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 SCOTLANDROYAL BANK OF SCOTLAND
The UK government owns a 70% stake in RBSThe 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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