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Thu 29 Jul 2010 10:19 AM

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UK banks may post £8.4bn profit on lower bad debts

Net income in 6 months to June-end seen rising from £281m in year-earlier period.

UK banks may post £8.4bn profit on lower bad debts
BIG BANKS: HSBC, Lloyds Banking Group, Standard Chartered, Barclays and RBS report from Aug 2 to Aug 6.(Getty Images)

Britain’s five biggest banks, including HSBC Holdings and Barclays, may say profit soared to 8.4bn pounds ($13.1bn) in the first half as falling bad loan provisions mitigate slowing growth in investment-banking revenue.

Net income in the six months to the end of June probably rose from 281 million pounds in the year-earlier period, according to median estimates from analysts surveyed by Bloomberg.

HSBC, Lloyds Banking Group, Standard Chartered, Barclays and Royal Bank of Scotland Group report from Aug. 2 to Aug. 6.

“Impairments will be substantially better,” said Alan Beaney, who helps manage about 200 million pounds at R.C. Brown Investment Management in Bristol, England. “Banks took very aggressive writedowns last year and some of those were for a worst-case scenario which has not transpired.”

Britain’s banks are benefiting from a decline in provisions, having set aside 35 billion-pounds for bad debts a year ago during the country’s worst recession since World War II. That will help offset a slowdown in investment banking revenue, which was “softer” in the second quarter, Barclays’s Finance Director Chris Lucas said on June 30.

HSBC may say net income rose 83 percent to $6.14 billion from $3.35 billion, according to the median estimate of nine analysts surveyed by Bloomberg.

Bad debts fell with the closure to new customers of its former U.S. subprime consumer finance operation last year. Losses in North America probably narrowed to $1.1 billion from $3.7 billion, analyst Carla Antunes da Silva at JPMorgan Chase & Co. wrote in a note to investors on July 19.

Pretax profit at HSBC’s investment banking unit, led by Stuart Gulliver, probably fell 33 percent to $4.24 billion, da Silva wrote.

Credit Suisse Group AG, Goldman Sachs Group Inc., Citigroup Inc., JPMorgan Chase & Co., Morgan Stanley, and Bank of America Corp., on average reported a 34 percent drop in trading revenue in the second quarter from the first, company reports show. UBS AG’s investment bank posted a decline in trading revenue in the second-quarter, while beating analysts’ estimates. Sales and trading at the securities unit of Deutsche Bank AG fell 15 percent in the three months to June from a year earlier.

“Investment banking has for the last two or three months been poor,” said Guy de Blonay, who helps manage about 19.5 billion pounds at Jupiter Fund Management in London. “It’s been a difficult environment and expectations are low, so we’ll look for a surprise.”

Barclays may say net income rose to 2 billion pounds from 1.89 billion pounds, as provisions for bad debts and credit markdowns fell, according to the median estimate of nine analysts.

Barclays Capital, the investment banking division led by Robert Diamond, hired 750 people last year to boost equities and mergers advisory revenue in Europe and Asia. Costs at the division probably rose 27 percent to 3.9 billion pounds, while revenue excluding credit markdowns may fall 34 percent to 6.9 billion pounds from a year ago, wrote Jason Napier, an analyst at Deutsche Bank AG in London in a note to investors this month.

The expansion followed its acquisition of the North American operations of Lehman Brothers Holdings in 2008.

“We continue to forecast no return to the exceptional revenues achieved in 2009, notwithstanding the accelerated build-out of Barclays Capital’s equities platform in Europe and Asia,” wrote Ian Gordon, an analyst at Exane BNP Paribas SA in a note to investors on July 27.

Standard Chartered, which makes most of its profit in Asia, will probably report a 13 percent rise in net income to $2.19 billion, on lower impairments at its corporate banking division, according to the median of five analysts surveyed.

RBS, Britain’s biggest government-controlled bank, will narrow its loss to 80 million pounds from a loss of 1.04 billion pounds a year ago, with the recovery in the economy, wrote analyst Mark Phin at Keefe, Bruyette & Woods Ltd. in a note to investors this month. Bad loan provisions will decline by 2.14 billion pounds to 5.38 billion pounds, according to Phin.

Lloyds will probably post a proforma pretax profit of 1 billion pounds, from a loss of about 4 billion pounds, according to the median of five analysts. In February, Chief Executive Officer Eric Daniels said bad debts at the 41 percent government-owned bank peaked in 2009, following the acquisition of HBOS.

“The issue for the UK domestic banks is the consumer and housing,” said Julian Chillingworth, chief investment officer at Rathbone Brothers, which manages about $21 billion. “People will be concentrating more on the outlook statements than the numbers.”

HSBC is scheduled to report earnings on Aug. 2, Lloyds and Standard Chartered on Aug. 4, Barclays on Aug. 5 and RBS on Aug. 6. (Bloomberg)

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