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Western EuropeAugust 3 2009

A few specks of hope light up bleak UK picture

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In the financial crisis, UK banks have split into two distinct camps. In the first, are those that have felt the full brunt of the crisis and posted record losses, led by Royal Bank of Scotland and HBOS. In the second group, are the relative winners in the crisis, who have also thus far avoided the worst effects of the recession, including the Co-operative Bank, Abbey and Bank of London & the Middle East.

The change in this year's Top 1000 Tier 1 capital ranking - which sees HSBC pushed from first into second place by Royal Bank of Scotland - can appear counterintuitive. Even though HSBC grew its Tier 1 to £65.39bn ($107.7bn) from £52.58bn last year, a series of acquisitions, including ABN Amro, mean that RBS's Tier 1 equity has more than tripled over the five past years, from £22.69bn in 2004, to £69.85bn in 2008.

RBS's severe losses in 2008 - when pre-tax profits plunged to -£40.67bn - follow several years of stellar growth, when profits steadily increased from £6.92bn in 2006 to £9.9bn in 2007. RBS has explained some of this year's sharp fall by the fact that The Banker's figures include minority interests - in this case because of ABN Amro losses attributable to Fortis. Another Scottish bank has also seen pre-tax profit drop dramatically. HBOS, acquired by Lloyds TSB Group in January 2009, recorded a fall from £4.59bn in 2004 to -£10.82bn in 2008.

While many UK institutions have been hit hard by the financial crisis, banks such as HSBC and Barclays were profitable last year. And though nowhere near as profitable as in the past, the rate of decline was less precipitous than many competitors in the US. Moreover, the first half of this year has seen a signficant rebound for both of them.

Some other banks have grown profits. Since last year's ranking, Bank of London & the Middle East grew its pre-tax profit sixfold. The Co-operative Bank also did well. After a decline in profits of 94% in 2007, its pre-tax profits jumped from £11.1m to £23.3m in 2008. And in the domain of the foreign-owned banks, Santander-owned Abbey successfully increased its pre-tax profits, from £864m in 2007 to £1.09bn in 2008.

The UK's banks have been in the public eye over the past year. The acquisition of HBOS by Lloyds TSB Group, the pumping of government capital into some of the biggest institutions and RBS's losses were the main concerns. But those problems have overshadowed the relative success or stability of others. Now that the most troubled banks are through the worst, will the UK industry overall make a better showing next year?

UK Banks\' Pre-Tax Profit (£M) 2004-08

UK Banks' Pre-Tax Profit (£M) 2004-08

UK Banks by Pre-Tax Profit Change (£M)

UK Banks by Pre-Tax Profit Change (£M)

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