State banks to post losses
TAXPAYER-owned banks Lloyds and RBS are expected to report huge losses of up to £6bn this week as they unveil their full-year results.
The consensus estimate for Lloyds alone is a loss of some £4bn, putting the 41-per cent taxpayer-owned bank back in the red after a £281m profit last year.
The huge loss is forecast despite a £2bn operating profit expected from the bank’s core businesses, showing the dramatic impact of one-off costs and provisions for legacy issues.
The vast majority of the bank’s losses will stem from the £3.2bn provision Lloyds made last year to compensate customers who were mis-sold payment protection insurance (PPI).
For RBS, which is 83-per cent state-owned, the range of estimates is much greater, with analysts coming to widely varying conclusions over the impact of an accelerated shrinkage of its investment bank and non-core division, which could crystallise some expensive losses.
Overall the group is expected to report a loss of £1-2bn.
Analysts at UBS cut their recommendation from “buy” to “neutral” on the bank recently, on the grounds that it has already seen its share price rise dramatically this year to reflect “action to address underperformance within the investment bank”.
The broker credits management action for adding £6.5bn to the value of taxpayers’ stake in the bank so far this year.
But the analysts also warn that political interference risks remain: “It seems surprising that the political establishment which, we think, should be aligned with a good investment outcome for RBS shareholders, is potentially putting this at risk by raising concerns over the CEO’s remuneration,” they say.