Market braces for banking results bonanza

City to look for signs of impending job cuts after redundancies at Credit Suisse and UBS
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The Independent Online

The City will pore over a mixed set of interim results from the big five listed UK banks this week, looking for signs of potential job cuts and the impact of the eurozone crisis.

Investors will be concerned that investment banking divisions could shrink, after Credit Suisse and UBS announced 7,000 redundancies between them last week. HSBC's chief executive, Stuart Gulliver, has been reported to be looking for 10,000 job cuts as part of a programme to save up to $3.5bn (£2.13bn) a year, though it is thought that he will not confirm them at tomorrow's results briefing.

Michael Trippitt, head of research at Oriel Securities, said he would be looking at the HSBC's level of writedowns, or impairments in North America and the quality of its loans in Europe. Analysts expect pre-tax profit for the overall group to be around $11bn for the first half, boosted by growth in emerging markets in Asia. Although US write-downs are still likely to be a little over $3bn, this would only be two-thirds the figure of last year.

The US sub-prime mortgage lender Household International, which HSBC bought in 2003, has been a severe drag on the bank's performance. But the decision in 2009 to halt Household's consumer lending is expected finally to bear fruit. JP Morgan has warned that the investment banking division is only likely to contribute $839m of pre-tax profit, down from $2.09bn in the same period last year.

Mr Trippitt said that across the big five banks, he was looking to see whether the crisis in Greece, Ireland and Mediterranean economies had increased their cost of borrowing. He will also be keeping a close eye on warnings that customers are defaulting on their loans. "In terms of broader trends, it will be important to see what impact European sovereign risk has had on the cost of funding," he said. "And we will look for any further detail on consumer asset quality."

Barclays follows HSBC on Tuesday. The investment banking division, Barclays Capital, has helped steady the group during the financial crisis, but analysts at Shore Capital think that the division will not be such a source of strength this time around.

In a preview note, Shore said that it expected BarCap to provide around £2.8bn to £3bn top-line income against £3.3bn in the first quarter.

The note added: "Read-across from the US and European investment banks that have reported so far [Goldman Sachs, Morgan Stanley, Bank of America, Citigroup, JP Morgan, UBS, Deutsche Bank and Credit Suisse] suggests to us that there may be some downward pressure on consensus BarCap revenue and profit forecasts."

On Wednesday, Shore expects Standard Chartered to announce pre-tax profit of around $3.5bn, up from $3.1bn in the first half of 2010. Market guidance from the bank earlier this year suggested that cost growth as a result of inflationary pressure in Asia had been kept under control.

Lloyds shares have been badly hit in 2011, after first-quarter results were hurt by the decision to set aside £3.2bn to cover probable liabilities from the payment protection insurance mis-selling scandal. However, Keefe, Bruyette & Woods expects second-quarter pre-tax profit before exceptional costs to be £1.1bn. Losses in Ireland and Australia, although still high at £2.2bn, will be £1.4bn lower than the second half of 2010.

Finally, RBS reports on Friday. It is thought the bank will show overall business lending is up, though this will be driven by increased borrowing from bigger corporates.