Banking goes from bad to worse as more big names see profits fall

With HSBC, Barclays and RBS preparing to announce huge losses in first half of year, only Standard Chartered stands out from the crowd

By Simon Evans

The health of Britain's retail banks will once again come under the microscope this week with HSBC, Barclays and Royal Bank of Scotland (RBS) all expected to detail hefty falls in profits during the first half of the year.

Only Standard Chartered, the Asia-focused bank led by Mervyn Davies, which reports on Tuesday, is expected to post a growth in profits. Analysts expect profits during the first quarter to have jumped by more than one fifth.

In contrast, RBS's chief executive, Sir Fred Goodwin, is expected to announce that the bank lost £1.2bn during the first half of the year at its interim results on Friday. The first half of 2007 saw RBS scoop profits of £5bn.

Sir Fred is also set to update the market on whether the floundering sale off the company's insurance business (RBSi), which initially came with a price tag of near £7bn, will be scrapped. It is thought that Allstate, the American insurance group, which is being advised by Lehman Brothers and JPMorgan, is the only serious bidder left in the race.

Sources close RBS attempted to talk up the chances of a deal last week, saying: "There really isn't as much distance between Sir Fred's valuation and the price coming from the bidder."

Failure to offload the RBSi unit is likely to heap further pressure on Sir Fred, who is still out of favour with many City investors over his U-turn on a £12bn rights issue and the bank's role in the £72bn purchase of ABN Amro at the top of the market last year. Some investors have told RBS's adviser Merrill Lynch that Sir Fred has a year to save his job.

Shares in RBS closed up more than 1 per cent on Friday at 215.25p – nearly 400p shy of the bank's stock price a year ago.

Meanwhile, John Varley, Barclays' chief executive, who lost out in his tussle with Sir Fred to win the Dutch bank ABN Amro last year, is expected to reveal a fall in profits during the first half of the year of £1.5bn to £2.6bn, amid continued City cynicism that the bank is underplaying the extent of its losses linked to the credit crunch.

In June, Barclays tapped up a raft of sovereign wealth funds to the tune of more than £4bn to shore up its balance sheet and improve its ailing capital ratios.

Shares in Barclays closed up more than 1 per cent on Friday at 341.5p – less than half the value of the company a year ago.

On Monday HSBC, the UK's biggest bank, will kick off the week's proceedings when it is expected to reveal that profits during the first half of the year have plunged by £2bn, compared with £5bn at the same time last year. The spotlight will once again fall on the performance of the group's US operation, the failure of which prompted the first-ever profits warning in its 143-year history in February last year.

Analysts expect American impairment charges to come in at $7bn (£3.5bn), a fact that is sure to be seized upon by a rebel shareholder, the Monaco-based hedge fund Knight Vinke, which has been mounting a campaign for the break-up of HSBC for much of the past year.

But one City source said scathingly: "After their [Knight Vinke's] showing at the recent AGM, I doubt they'd have the gall to pop up again."

This week's slew of banking results comes after Lloyds TSB and HBOS posted profit falls in excess of 70 per cent at the end of last month.

Alliance & Leicester, which is subject to a bid from the Spanish banking giant Santander, said last Friday that its pre-tax profits during the first half of the year had come in at just £2m, compared with nearly £300m during the same period last year.