The health of the UK’s biggest banks has been revealed following the topsy-turvy year that was 2016, during which they had to deal with Brexit volatility, record-low 0.25% interest rates and a bevy of new fines.
Some banks report in US dollars and others in sterling (which lost 16.6% last year, in another challenge for their businesses) so it is unfair to compare absolute figures. Nevertheless, year-on-year changes are a good yardstick for UK banks’ relative performance.
One of the best performers was Barclays, which nearly doubled its pre-tax profits, including revenues from discontinued operations. This was fuelled by a rise in investment banking profits and lower conduct charges. Barclays made headway on its strategy to slim down and focus on key markets, selling a £600m ($746.7m) stake in its Johannesburg-based subsidiary to kick off its pull-back from Africa, and continuing to run down its non-core unit, which is expected to close in June 2017, six months ahead of schedule.
Despite this, Barclays’ total assets grew a little over 8%, from £1120bn to £1213bn, primarily due to an increase in its loans book (partly because of the depreciating pound) and liquidity pool.
Lloyds also had a good year, posting pre-tax profits of £4.24bn, up from £1.64bn in 2015. This 158% increase was driven by lower provisioning for payment protection insurance mis-selling claims, which have plagued the bank since 2011. Income in the commercial banking unit was up slightly on 2015, but at the group level income – as well as costs – were down. Net total assets increased 6.34% while risk-weighted assets (RWAs) fell by 3% to £216bn.
HSBC shock
HSBC was the year’s big surprise. The bank posted a pre-tax profit of $7.11bn, but this was 62.3% less than in 2015, ending seven years of pre-tax profit growth (bar a small dip in 2012). Meanwhile, its $46.92bn net operating income is at a level not seen since 2009 and 2010. Global Banking & Markets, HSBC’s investment banking unit, was among the better performers, increasing revenues by $353m to nearly $15bn. Total assets at the UK’s biggest bank were steady at $2375bn.
After a pre-tax loss of $1.52bn in 2015 (its first in a decade due to a hefty restructuring), emerging markets-focused Standard Chartered recovered in 2016, posting a $409m pre-tax profit. Net trading income increased from $766m to $1.89bn, but overall operating income was down 11%. Impairment losses were 41% lower than in 2015, with the biggest improvements in commercial and retail. Total assets were steady at $646.69bn, but the bank managed to reduce RWAs by 11% to $269.4bn.
At RBS, which is 73% owned by the government after its 2008 bailout, total assets declined for the fifth consecutive year (from £815.4bn to £798.66bn) in line with its restructuring into a smaller, UK-focused bank. More notable than this 2.05% fall is RBS’s 6.09% drop in RWAs (from £243bn to £228.2bn), evidence that the bank is making progress in not only shrinking, but also derisking its balance sheet. Its £4.08bn pre-tax loss marked its eighth year without recording a profit, at more than three times its 2015 loss, but far smaller than that of 2012 (£5.16bn) and 2013 (£8.24bn).
All data sourced from annual results and www.thebankerdatabase.com.