British banks' profits are predicted to more than halve in the interim reporting season that starts on Wednesday as credit-crunch writedowns and rising bad debts take a toll on the record profits reported a year earlier.
Analysts believe the UK's seven biggest banks will report total interim profits of £11.7bn over the next fortnight, a fall of more than 50 per cent from the record £23.5bn announced at the same stage last year. This week will see Lloyds TSB, HBOS and Alliance & Leicester – the three most UK-focused of the FTSE 100 banks – reporting first-half numbers. They will be followed by international banks the following week.
The results will provide a stark contrast from a year earlier when profits were boosted by the last few months of the credit boom that ended last August.
However, the Citi analysts – who were among those predicting fundraisings when the banks were resistant – said capital and not earnings would remain the main concern for investors over results season, despite the £21bn raised by lenders so far. "Greater emphasis is likely to be placed on what the banks say about their respective balance sheets – from both a capital and funding perspective – in the face of a significant economic downturn and continued problems in global capital markets."
Investors will also be looking for further writedowns or losses on holdings of credit assets that have turned sour after confidence disappeared from the once-booming debt markets.
The results of Lloyds TSB and HBOS are likely to see a reversal of fortunes for the two banks from recent years. HBOS profit is expected to fall by two-thirds on Thursday as income falls and bad debts rise for Britain's biggest mortgage lender. Citi forecasts Lloyds to announce a 12 per cent fall in pre-tax profit on Wednesday because of rising bad loans and further charges against treasury assets. Lloyds is now back in favour with investors for its cautious approach after its growth trailed HBOS and other rivals during the credit boom. But doubts persist about Lloyds' capital position, which has not been reinforced in the recent round of fundraisings.
HSBC will kick off reporting by the international banks on Monday next week.Reuse content