Banks hoping for signs of upturn

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The Independent Online
AS BRITAIN'S big clearing banks prepare to announce their first-half profits for 1992, they will be desperately looking for the tiniest ray of light at the end of the tunnel.

Nearly every bank has stumbled over bad loans, company failures and personal customer debt. Business became so difficult for one former giant, Midland, that it has agreed to be taken over.

The industry's interim results season begins with Midland on 30 July. Enormous bad-debt provisions for the sector are expected, and total provisions for the big four are estimated at around pounds 2.5bn - about the same level of bad-debt cover that Midland, Lloyds, National Westminster and Barclays took in the first half of 1991.

The provisions will lean heavily towards domestic business, because small company and personal debt has not diminished and the banks have carried the can for the recent commercial property failures. The provisions at Barclays, the clearer with the heaviest exposure to the property crisis, are expected to account for around pounds 1bn of the total.

'No bank will produce results that will make attractive reading, and many are likely to be as bad as they were in the second half of 1991,' warns Martin Cross, banking analyst with SG Warburg Securities.

Many bankers are hoping that once the results are behind them, they will be over the worst. Chris Wheeler, banking analyst with investment bank Lehman Brothers International, is optimistic, though he says any rebound to profitability is likely to be gradual.

'The statistics are showing receiverships and bankruptcies down, and mortgage arrears are also moving down. We do see a light at the end of the tunnel.'

The speed of recovery will vary between banks, with property exposure one of the key factors.

The large commercial property failures of the past six months - the list includes former prime borrowers Olympia & York, Mountleigh, Heron and Speyhawk - in effect postpone the recovery and so prolong the banks' problems.

Julian Robins, of brokers BZW, says: 'The only sure sign of bad debts falling will be when property prices begin to rise. This is a long way off.'

Barclays is set for further damage to its profits and blue- chip reputation. It is expected to stage a clear-out of its loan portfolio.

NatWest is forecast to show an improved performance after the turnaround in its US operation, which has held back the group for several years. Rod Barrett of Goldman Sachs says: 'NatWest's profits have passed the worst, whereas for Barclays, it lies ahead.'

Midland's results will be scrutinised after the change in top management last year. But new ownership may curb some of the speculation. Hongkong and Shanghai Bank reports its interim results on 25 August and is likely to publish a pro forma result including Midland's figures.

Lloyds, although perhaps slightly deflated after its hostile bid for Midland failed, could post one of the best results.

Abbey National, the former building society, remains dependent on the housing market and its first-half profits will reflect arrears, low turnover and weak prices. Yet its avoidance of corporate lending will be a boon. As a result, Abbey's results are expected to be relatively healthy.

Standard Chartered, the clearing bank with the most far- flung global network, has been hurt by the Bombay stock exchange scandal, and an extra first-half provision of pounds 50m is expected. But windfall write- backs from two court cases may offset that problem.

Only Lloyds, Abbey National and possibly the Bank of Scotland are expected to increase their dividends.

----------------------------------------------------------------- UK CLEARING BANK FORECASTS ----------------------------------------------------------------- Interim pre-tax profits, pounds m Bank Date '91 Interim '92 F'cast Abbey National 3 Aug 308 305 Barclays 6 Aug 378 185 Lloyds 31 July 331 355 Midland 30 July -71 125 NatWest 4 Aug 101 175 Stand Chartered 5 Aug 83 80 ----------------------------------------------------------------- Source: Hoare Govett -----------------------------------------------------------------

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