Banks weigh in with losses, profits and big impairments: Round-up
This week saw a brood of banks unveil profits and losses - ranging from Barclays seeing profits bloom, RBS breaking even and Lloyds Banking and Northern Rock posting losses.
Daniel Barnes trawls through the reports of half-year performance to see if the banks are lending and where they are heading.
The half-year reports show layers of different accounting methods - with profits in one column becoming losses in the next.
And then Lloyds Banking did not exist in its current form a year ago - so we are comparing Lloyds TSB and HBOS in 2008 with the merged giant today.
Another new giant is Santander with Alliance & Leicester, Bradford & Bingley and Abbey all under one roof.
Profits
Generally over the first half of the year, profits came for the investment operations - the so-called casinos that started the crisis - and losses came from retail operations that are now suffering as the pain passes to the real economy and the high street.
Royal Bank of Scotland basically broke even, which in some sense is a victory compared to the biggest corporate loss in British history for 2008.
On a pre-tax basis, RBS's profits hit £15 million - a tiny amount compared to the total income of £14.8 billion. The lender saw a net attributable loss of £1.0 billion.
Growth came from the global banking and markets division.
Santander's UK operations saw profits up 30 per cent to £790 million in the six months.
Barclays' profits for the first-half hit £3 billion - very much driven by Barclays Capital. Profits on the UK high street were down 61 per cent to £268 million.
The lender also admitted its target for profits up to 2011 was unlikely to be met - given the greater capital requirements it was facing.
HSBC saw profits fall by 51 per cent to £2.98 billion - as the bank took a conservative stance to its business.
Performance for the bank was strongest in Europe, Hong Kong, and Asia-Pacific, while in North America losses of $2.20 billion were recorded.
Internationally, HSBC's retail banking recorded a loss of £741.8 million.
Northern Rock sticks out for being particularly un-international in its approach.
The nationalised bank reported a £724.2 million loss for the first half of the year. Its exposure to the UK property market and the flight of its most credit-worthy customers certainly made life hard.
Gary Hoffman, chief executive of Northern Rock said: "The current environment continues to be challenging, however, against this backdrop Northern Rock is making progress."
Lloyds Banking saw the effect of HBOS dragging it down remain. The group posted a £4 billion loss.
"2008 was a difficult year for the banking industry and the first half of 2009 proved no less challenging," said Eric Daniels, Lloyds Banking chief executive.
Bad debts
In recessions, people lose jobs and cannot afford to pay their loans. This creates problems for the banks.
Especially as charges are bandied around that in the boom years some of the lenders were keen to take profits from overloading consumers with debt, which they couldn't really afford then, never mind in a recession.
RBS saw large problems and bad debts coming as the lender found its fingers, arms and shoulders burnt by international expansion.
"As a bank with deep exposures in economies which are structurally indebted, we were more exposed to the crisis than many," said Mr Hester.
In the UK RBS retail write-off stood at £824 million, corporates £551 million and the US business saw a £369 write-off.
Barclays saw its impairment charges hit £4,556 million - up 86 per cent. These came from credit market exposure, corporate failures and in consumer lending.
However, the lender said its bad debts from mortgages in the UK remained "relatively low".
HSBC put aside £8.28 billion to cover loan defaults.
Northern Rock was particularly hit by loan defaults - as the number of its borrowers in arrears was way ahead of the average bank.
There are now over 22,000 Northern Rock mortgage customers in arrears - with the lender seeing higher levels of arrears as after initial nationalisation it openly pushed mortgage customers to remortgage with other lenders so it could repay its government debt.
This means it was left with borrowers who could not remortgage due to low levels of equity, or even negative equity, and poor credit records.
The arrears level of those Together borrowers who were able to take mortgages of up to 125 per cent - combining a home loan and a personal loan - was at 6.47 per cent.
The bank states its impairment losses may well stand just as high in the second half of the year.
Lloyds Banking recorded impairments of £13.4 billion - 80 per cent of which coming from HBOS loans "the majority of which are outside the traditional Lloyds low-risk appetite", the firm stated.
Outlook
The banks unified in their caution, although some were more cautious than others.
Their outlooks are perhaps the most interesting reading - pointing to either where they see themselves and the economy heading or where they want to be heading.
Hanging over RBS is the problem of some £31 billion of non-performing and potentially problematic loans it admitted to.
Mr Hester at RBS warned of "no miracle cures", in his letter to shareholders.
He wrote of the bank facing "unprecedented pressures, challenges and change" and profits not really coming through strong until 2010.
"The 'new RBS' will be a very different bank than before, in both what we do and the way we do it, and rightly so." This new RBS will be anchored in the UK.
"As a bank with deep exposures in economies which are structurally indebted, we were more exposed to the crisis than many," said Mr Hester.
Dangers highlighted for the bank came from the recession, how long it will take to sell or run down the businesses it wants rid of, and new regulation from the UK and EU.
RBS also warned while profits came from global banking and markets but the favourable market it benefited from is not likely to continue. The bank will also be hit with higher restructuring charges.
Barclays finance director Chris Lucas said the rest of 2009 would be "challenging" as recession continued throughout the world.
Losses from impairments are expected to hold steady and the low interest rates will hold down profits, he said, particularly in the UK.
However, he did expect the low interest rates and government activity to stimulate the growth "to be positive for the economy in time".
Stephen Green, chairman at HSBC, explained "we have passed, or are about to pass, the bottom of the cycle in the financial markets" but added "nonetheless, the timing, shape and scale of any recovery in the wider economy remains highly uncertain".
"Our view continues to be cautious as long as a number of serious impediments to growth remain," Mr Green concluded.
Lloyds Banking said it was "it is well positioned for long-term growth" and it saw that bad debt write-offs may well have peaked.
Mr Daniels said he expected the economy "to stabilise in the second half and start recovering slowly in 2010". The firm's margins are expected to increase into 2010 - but still be below 2008 levels.
Garry Hoffman, chief executive of Northern Rock, stated: "The outlook for the UK mortgage and housing market remains uncertain.
"Northern Rock expects the loan loss impairment charge in the second half of 2009 to be broadly similar to the first half of the year and then to start reducing in 2010."
Losses will depend on house prices and the levels of unemployment.
"The current environment continues to present Northern Rock with challenges," Mr Hoffman said.
Bank results
LLoyds Banking Group First Half Results
Northern Rock First Half Results
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