Between them, Britain’s big five banks have so far made provisions for £7.5bn of bad loans later this year from the coronavirus crisis.
The “good news” is that the UK’s top lenders losses were nowhere near the amount absorbed by their US cousins, said AJ Bell analyst Russ Mould.
A combined US$24bn hit was taken by the four giant Main Street lenders, Bank of America, Citigroup, JP Morgan and Wells Fargo.
Britain’s banks may have been helped by the leeway granted by the Bank of England’s Prudential Regulatory Authority with regards to the accounting for the potential losses, Mould said, “which means the banks do not face an immediate requirement to book hefty losses against loans impacted by the viral outbreak”.
“However, this does beg the question of whether there are further losses coming down the line for the Big Five, despite their rigorous tests and scenario analyses, even if they are mercifully a long way from the run rate needed to match the £57bn in loan and credit impairments booked in 2009.”
Of the London-listed banks, HSBC PLC (LON:HSBA) as the largest unsurprisingly had to take the largest charge, with a US$2.4bn increase in provisions for potential credit losses to a total of US$3bn. The globe-spanning lender had already taken an even bigger hit, when February’s final results revealed a US$7.3bn goodwill impairment taken for the fourth quarter due to lower assumptions about the world’s long-term economic growth.
Barclays PLC (LON:BARC) ramped up its credit impairment charges to £2.1bn, including £1.2bn from the potential fallout from the pandemic and a sustained period of low oil prices and £405mln for wholesale loans.
Lloyds unveiled £1.8bn of charges, with £1.4bn impairments and £421mln of other charges.
Without the large credit card business of the above pair, Asia-focused Standard Chartered PLC (LON:STAN) made an impairment of US$956mln.
With its results coming at the end of the week, taxpayer-owned Royal Bank of Scotland Group PLC (LON:RBS) took the smallest charge — so far at least — with impairment losses of £802mln that included £628mln specifically relating to the more uncertain economic outlook.
Plunging profits – mostly
RBS did not see the smallest effect on profit before tax, with PBT for the quarter down 49% to £519mln year-on-year, down 66% on the preceding quarter.
Lloyds, as mentioned, saw the biggest drop as PBT of £74mln down 95% compared to the fourth quarter and first quarter last year.
HSBC profits of US$3.2bn crashed 48% year-on-year, as income remained solid, but profits were much better than a US$3.9bn loss from the fourth quarter due to the aforementioned goodwill writedown.
Versus the same period last year Barclays PBT tumbled 38% to £913mln, but only 17% compared to the preceding quarter as the benefits of its investment bank came through.
Similarly, StanChart’s relatively small PBT drop of 12% to US$1.2bn came as income increased 13% from higher volumes in financial markets offsetting lower interest income.
The combined crumbling of 52% in profit across the quintet drove drops in return on equity too.
These “meagre” returns on equity, said Mould, help to explain why all of the five FTSE 100 banks trade at a discount to the last stated net assets, or book value per share.
“For the banks to prove that their shares are oversold, this will be the figure that they need to improve above all others, although a resumption of dividend payments once regulators and economic circumstances permit would be a boost for sentiment, too,” he said.
Strong capital ratios provide some reassurance for the banks and their investors.
RBS has the strongest capital ratio, pumped up to 16.6% in the first quarter from 16.2% at the end of last year.
HSBC’s was flat at 14.6%, while at Lloyds CET1 strengthened to 14.2% from 13.8% .
StanChart softened to 13.4% from 13.8% and likewise at Barclays slipped to 13.1% from 13.8%.
The effects of Covid-19 overshadow the absence of litigation costs, said Mould, with RBS booking nothing and between them Barclays, HSBC, Lloyds, Standard Chartered and RBS lost just £84mln to regulatory and conduct issues, the lowest figure since early 2014 and the second-lowest since Lloyds first took a PPI compensation claim charge back in 2011.