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The biggest losses ever

The world of UK banking is expected to be shaken,
not stirred, later this week when the Royal Bank of Scotland announces the
worst results in UK banking history with a £1 billion loss for
the first six months of 2008. 

 

This follows similar bad news from Northern Rock (£585 million/$1.6 billion loss), Lloyds TSB (profits down 63%), HBOS (profits
down 51%),
HSBC (profits down 28%) and others.

 

Much of this is due to a major hike in costs of
business, due to interest rates and lack of funding as liquidity dries up. For example, HBOS’s cost-income ratio rose by
10% from 39.9 to 49.6 during over the last year.

 

But then it’s also the one-year anniversary of the
credit crunch on 9th August. Hopefully
one-year into the crisis we will start to see some good news coming out of the
gloom.

 

On the other hand, some media think the crisis
will get worse as credit turmoil spreads to debit. For example, the Time
s reports that Corporate
Britain owes £545 billion to their banks and, as more corporates default with
bad debt, this will add to our woes.

 

Funnily enough, I found an interesting white paper
by a certain
 Ben Bernanke asking this very question: “is there a corporate debt
crisis?”

 

The only thing is that he wrote the paper in 1988.

 

What goes around comes around.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  • Yes, but these figures aren’t really losses in the same sense that you and I make losses: They’re asset markdowns and bad debit provisions and, unless I’m remembering things incorrectly, banks can take bad debit provisions against tax can’t they? So it’s not as bad as it looks: the banks still have the asset and the bad debt has been shared with taxpayers.

  • The results came out today, and the Royal Bank of Scotland made a loss, but nowhere near as bad as these early week reports made out.
    The bank made a pre-tax loss of £691m in the first half of this year, compared with a profit of £5bn a year ago, after a write down of £5.9 bn in the value of its credit market assets.
    Without the write-downs and the costs of integrating ABN AMRO, the bank made a profit of £5.1bn.