The British banking landscape looked very different a year ago. Bradford & Bingley's bungling chairman, Rod Kent, was warning shareholders they faced two tough years. Little did those equity holders realise it, but they would be wiped out a few months later.
Royal Bank of Scotland's Sir Fred Goodwin was still with us. As was HBOS's Andy Hornby, Lloyds chairman Victor Blank, and a cast of other bankers who would eventually fall on their swords, no doubt scurrying off to palatial second homes in the sun.
The Chancellor, Alistair Darling, was still forlornly hoping for a private solution to the looming crisis in banking, with Lehman Brothers secretly on its knees. One year on and each household in Britain has ploughed in, on average, £3,000 to prop up the likes of RBS and Lloyds Banking group.
Given the public's newfound ownership of the banks, the financial reporting season that begins in earnest this week will be more hotly anticipated and more heavily scrutinised than, perhaps, ever before.
Santander, the Spanish banking giant that scooped up Alliance & Leicester and Bradford & Bingley last year, said last week that profits from its British operations had surged over the first six months of the year, while bad debts had fallen.
Sadly for John Public, the numbers about to be posted by Britain's traditional banking players are likely to be less rosy. Most high street banks are expected to report losses, as personal and corporate customers struggle to pay back loans extended to them during the good times since 2004. And for the banks owned by the taxpayer, whose share prices have rallied in recent weeks, this week's interim numbers are likely to make particularly grim reading.
"The results from RBS and Lloyds Banking Group will still look pretty terrible, as the impact of the economic slowdown increases the bad debt charge," says Nic Clarke, a banking analyst at stockbroker Charles Stanley. "However, some of the hit could be offset by write-backs [the opposite of a write off] on assets, such as sub-prime, which have fared better in recent months."
RBS, like Lloyds Banking Group, participated in the Government's £585bn asset protection scheme. Expected to be finalised in September, the scheme has injected a large dose of surety into both banks' share prices despite other material concerns.
RBS's chief executive, Stephen Hester, who could scoop a payout worth nearly £10m if he turns the Edinburgh-based bank's fortunes around, is expected to say it lost around £700m on underlying assets in the first half of the year, confirming concerns about deteriorating credit quality,though overall it will edge back into the black.
However, City analysts are keen to hear about the progress of the strategic plan unveiled by Mr Hester in March, where the company's assets were split into two piles: ongoing operations and non-core assets which are up for sale. The "For sale" sign has been hung on the bank's operations in India, Pakistan, China, Malaysia, Vietnam, and the Philippines. The bank's New Zealand business is also being closed.
Like Mr Hester, Lloyds Banking Group's chief executive, Eric Daniels, has plenty of problems to grapple with. But at least the short-term future of Mr Daniels seems to have been guaranteed with the appointment of the former Citibank chairman, Sir Win Bischoff, as chairman earlier in the week. He replaces Sir Victor Blank, the primary architect of the ill-fated purchase by Lloyds of HBOS earlier this year, which plunged the once conservative institution into crisis. Sir Victor will nevertheless present the bank's first-half numbers on Wednesday.
Analysts at the broker Keefe, Bruyette & Woods expect that Britain's biggest mortgage lender will unveil pre-tax losses of around £3bn – some analysts think as much as £5bn – reflecting further decay in HBOS's loan book, which is heavily exposed to the struggling property and retail sectors.
Like RBS, Lloyds is in the process of trying to sell assets. The bank recently put out a prospectus for the former HBOS integrated finance arm. A division worth billions, it houses a rather disparate collection of businesses ranging from the shirt retailer TM Lewin to the Vue cinema chain.
Both Lloyds and RBS are under pressure from the European Union's formidable Competition Commissioner, Neelie Kroes, to sell assets. Under European rules, he argues, the billions of pounds of state aid used to save the two banks has afforded them an unfair competitive advantage, thus dictating the need for the break-up.
The RBS chairman, Sir Philip Hampton, said last week that the EU is "asking for more than we've outlined, [but] it's fair to say that its primary concern is Lloyds because of its big market share after its recent merger with HBOS."
RBS and Lloyds faced further problems just last week when they were summoned by the Chancellor to Downing Street to explain why, despite billions of pounds worth of government support, lending to companies has failed to increase sufficiently, while lending costs have remained stubbornly high even though their cost of borrowing is just 0.5 per cent.
Aside from Britain's de-facto state owned banks, those that managed to stay in private hands will also be reporting. HSBC, Europe's biggest and the world's third-largest bank, reports on Monday, months after tapping its shareholders for £12bn in the biggest rights issue of the year.
The City expects the Stephen Green-chaired bank to posted a first-half profit of $5bn (£3bn), but the extent of the bank's travails in America will once again be the primary focus.
It's predicted that the bank will have to put aside around £10bn to cover further souring of consumer loans made in the US, where growing numbers are defaulting. Analysts believe HSBC will continue to rack up losses in the US for at least another year.
In contrast, Barclays, which has enjoyed a dramatic surge in its share price of late, could buck the banking gloom and deliver stronger than expected figures on Monday.
Its chief executive, John Varley, has performed a difficult balancing act during the past 12 months, avoiding the need to participate in the Government's bailout and asset protection scheme, thereby securing the bank's independence and avoiding the chains associated with state borrowing.
Instead, Mr Varley turned to the Middle East to secure funding, and recently sold off the company's investment jewel, BGI, to the American fund management group BlackRock in a deal that will net the bank £8.2bn in cash and shares in the new company.
Analysts predict Barclays could post half-year profits of more than £2bn, buoyed in large part by the strong performance of its investment banking division, BarCap, led by Bob Diamond.
But not everyone remains convinced that Barclays is out of the woods yet. Rivals continue to claim the bank has been far less conservative in its $20bn worth of write downs of struggling assets than they have.
Standard Chartered plc, the UK banking sector's shining light, will on Tuesday report what are once again expected to be strong results. The bank's chief executive, Peter Sands, who took over the reins from Lord Mervyn Davies in 2006, has already indicated that the Asian-focused company had a stellar first five months of the year, in particular from its wholesale banking arm. It also seems that RBS's losses could be Standard Chartered's gains, with reports last week suggesting that Mr Sands is looking to snap up RBS's Indian business for £250m.
Even in this environment, with the right management, banking can be a profitable business.Reuse content