Banking crisis: How the big UK banks compare
Today's news that US giant Citigroup is to break up and the massive bailout of Bank of America followed last night's nationalisation of Anglo Irish Bank. As the world banking sector appears to be entering crisis part two, how do each of the big UK banks look set to weather the storm?
Crisis: Business Secretary Lord Mandelson can't disguise his anxiety as he announced a raft of measures to tackle the recession
These are anxious times for the team recruited to Government by Gordon Brown to, in his own words, 'save the banks'.
The Prime Minister's scheme to recapitalise Lloyds TSB, HBOS and Royal Bank of Scotland in October was regarded as a savvy move even by his critics - the awful reality of letting Lehman Brothers go to the wall meant part-nationalisation was the lesser of two evils.
But hopes that the industry is over the worst have been dashed as today's bailout of Bank of America and Citigroup's woes followed last night's nationalisation of Anglo Irish Bank. With UK banks expected to post more big writedowns next month, confidence is evaporating, sending share prices tumbling in recent days - some to record lows.
Shares in Barclays today fell more than 20% in the last hour of trading, although traders seemed at a lloss to explain the sharp fall so late in the day.
'As ever, those actually responsible for spawning and feeding the gorgon seem to have no blame attached to them' - Evening Standard City Editor Chris Blackhurst on the latest banking woes...
Analysts fear HSBC, one of the sturdiest British banks, may have to raise billions of pounds to strengthen its balance sheet.
There is even talk of the worst-hit banks such as Royal Bank of Scotland and Citigroup in the US being fully nationalised. Against that backdrop, share trading starts on Monday in the new expanded Lloyds Banking Group, created and underwritten by the Government to save HBOS.
So the pressure is on Brown and his newly recruited ministerial team of Lord Mandelson and ex-Gartmore boss Paul Myners, as well as trusted Brown aides such as former UBS investment banker Shriti Vadera and Treasury mandarin John Kingman.
The fact this week that Brown recruited another new minister from the City - Standard Chartered chairman Mervyn Davies, one of the bankers who has fared best in the crunch - sent a powerful signal that the banking industry needs more help.
No wonder Baroness Vadera was pilloried for claiming she could see 'green shoots' of recovery. Lord Mandelson, with his better political antennae, admits a new Government recapitalisation of the banks could be on the agenda.
Here we look at the state of the main British banks, and also their top international competitors with operations in London:
HBO
Shares in HBOS, worth more than £11 each two years ago, were this week suspended at 70.1p before the merger with Lloyds TSB. It has been a humiliation for chief executive Andy Hornby, who oversaw aggressive expansion but has now written off £6.2bn - so far. Much of that is due to massive exposure to takeovers and property speculation under corporate lending boss Peter Cummings.
Aggressive: Andy Hornby
On the consumer side, HBOS used to rely on retail deposits for mortgage lending but ended up depending on the wholesale markets for 40% of its mortgages. When the credit crunch hit, its funding streams dried up. As recession deepens, loan defaults and bad debts rise (up from £2.4bn in June to £8bn in November), which further discourages the bank to lend.
The Government agreed to plough £11.5bn into HBOS, in return for a large stake, as part of the recapitalisation and merger with Lloyds TSB. The bank also tapped its own shareholders for £4bn. Expect losses of nearly £5bn for 2008 against profits of more than £5bn in 2007 and 2006.
UK bank safety
Worried about savings compensation? We detail the inherent safety of each UK bank for your peace of mind...
Lloyd
American chief executive Eric Daniels steered Lloyds TSB through the early stages of the financial crisis better than most, sticking to traditional banking rather than trading complex financial instruments. Then along came hBOS and the creation of Lloyds Banking Group, the so-called superbank controlling over a third of UK mortgages and a quarter of all savings - some £300bn of deposits. It looked like a canny deal until it became clear what a basket case HBOS was.
Gone is the much-cherished dividend, and the Government now holds a chunky 43% stake in the enlarged group through the £17bn bailout. The combined bank is reckoned by the City to have a tier one capital ratio of 6% to 6.5% - below the 7% guidance given by Lloyds. Credit Suisse analyst Jonathan Pierce warns further big losses at HBOS could see it tumble towards 4% 'which we do not think the market will tolerate'. The bank could have to ask the Government for more funds.
'The Shred': Sir Fred Goodwin
The enlarged bank's shares start trading on Monday - and with short-selling of banks legal again, it could be a rollercoaster ride, and 30,000 of the 150,000 staff could be axed. Look for losses at the combined bank of £3.6bn in 2008 and £994m in 2009.
RB
The last 18 months have been a disaster since chief executive Sir Fred 'the Shred' Goodwin led the consortium that bought ABN Amro at the top of the market for €71bn. The once-proud Scottish bank has written-off more than £10bn, gone cap in hand to shareholders for £12bn, and then handed over a 58% majority stake to the Government in exchange for a £20bn lifeline.
The tale of woe is far from over for new chief Stephen hester. The bank raised more than £30bn but its loan portfolio looks risky - £110bn is tied up in the crippled commercial property and construction sectors.
Speculation is that RBS, which owns NatWest and Coutts, needs more cash, and will be nationalised. Profits for 2008 are likely to come in under £2bn, well below the £10bn-plus made the previous year. The dividend has also been cancelled, and the hunt is on for a new chairman, possibly Sir Philip Hampton.
We will alert you if banks run into trouble...
HSB
'Fared better': Mike Geoghegan
But just this week Morgan Stanley analysts predicted HSBC may have to raise as much as £20bn and cut its dividend in half as profits fall 'sharply' until 2011, sending the share price tumbling. Such a fundraising would be the first for HSBC since the start of the crisis which has seen rivals raise more than $800bn. HSBC may want to move soon before investors suffer what Alex Potter at Collins Stewart calls 'rights issue fatigue'.
Barcl
The retrenchment of the banking sector was highlighted by the 4600 job cuts at Barclays in recent days. Some 1300 posts are being axed at investment bank BarCap, which under Bob Diamond doubled profits between 2003 and 2007 - before the debt markets went into seizure. Diamond's once all-powerful empire remains under pressure.
Barclays has been forced to write down £4.4bn, and has raised £18.5bn mainly through sovereign wealth funds. It turned down the Government's recapitalisation scheme but speculation is rife that it may yet have to turn to the taxpayer.
US banks
The US Government has made $700bn available through the Tarp (troubled assets relief programme), bailing out fallen giants such as Citigroup, Bank of America (which saved Merrill Lynch) and insurer AIG - all of which have big operations in London.
The fear is yet more toxic assets have to be written off. This could lead to full nationalisation of Citi and BoA, whose shares slumped 25% at one stage last night. After the demise of Lehman, Merrill and Bear Stearns - with the cost of at least 5000 jobs in the City - the last two remaining independent US investment houses, Goldman Sachs and Morgan Stanley, converted themselves into holding banks last autumn in order to obtain state support. Both banks posted losses of more than $2bn in the last quarter.
Bank safety: foreign banks in the UK
Worried about savings compensation? We detail the inherent safety of foreign banks operating in the UK for your peace of mind...
European banks
Banks have written off about $196bn across Europe (that includes the UK), compared with $471bn in the US, according to Bloomberg. Switzerland takes the wooden spoon, with UBS racking up $49bn of writedowns so far. The Swiss Government has set up a 'rubbish dump' for bad assets.
Germany's Deutsche Bank shocked the market this week with an early profit warning, and £4.4bn of new losses. The German government is following Britain by recapitalising banks, injecting $9bn into Commerzbank.
France has provided similar guarantees to the likes of BNP Paribas and Crédit Agricole. But analyst Brice Vandamme says: 'French households and corporates are less leveraged than most of their European peers.'
Despite Spain's property-market woes, its banks are relatively well capitalised. Abbey and Alliance & Leicester owner Santander has been grabbing market share in the UK but lost its clients $3.1bn at the hands of Bernard Madoff.
UK bank safety
Worried about savings compensation? We detail the inherent safety of each UK bank for your peace of mind...
Most watched Money videos
- BMW meets Swarovski and releases BMW i7 Crystal Headlights Iconic Glow
- Alfa Romeo reveals first electric sporty SUV Milano for Alfisti fans
- BMW's Vision Neue Klasse X unveils its sports activity vehicle future
- Tesla unveils new Model 3 Performance - it's the fastest ever!
- Mercedes has finally unveiled its new electric G-Class
- Mini celebrates the release of brand new all-electric car Mini Aceman
- 'Now even better': Nissan Qashqai gets a facelift for 2024 version
- Land Rover unveil newest all-electric Range Rover SUV
- Mail Online takes a tour of Gatwick's modern EV charging station
- Mini Cooper SE: The British icon gets an all-electric makeover
- Blue Whale fund manager on the best of the Magnificent 7
- 2025 Aston Martin DBX707: More luxury but comes with a higher price
- Digital marketing firm Mission Group snubs takeover offer...
- Heathrow takes fresh swipe at the tourist tax as it...
- Currys shares surge after profit guidance upgrade as...
- Anglo strikes out alone - but can it survive a bid...
- Anglo American rejects rival BHP's £34bn second takeover bid
- Police not interested in shoplifting, says M&S as thefts...
- London estate agent known as Mr Super Prime to star in...
- Used car marketplace Cazoo looking for buyers as it nears...
- US owner of Boots steps up efforts to find a buyer for...
- Will Nationwide pay out a £100 loyalty bonus again this...
- Investors ramp up bets against BT as new boss prepares to...
- Anglo American to restructure operations as it rejects...
- Taxpayer stake in NatWest falls below 27% as Treasury...
- European-made electric car batteries could cut carbon...
- Gamestop shares double as 'meme stock' social media...
- Car salespeople reveal their insider tips to buy and sell...
- MARKET REPORT: FTSE falters despite UBS call to buy...
- Virgin Money UK warns of pressure on profits ahead of...