Bank profits halved as write-downs cause further losses

According to analysis by KPMG of interim and annual financial statements from HSBC, Royal Bank of Scotland, Barclays, HBOS and Lloyds TSB, pre-tax profit among the five biggest players for the half-year ended June 2008 shrank by a massive 59.1% to £8.6bn, compared to the half year ended June 2007 which saw an 8.5% increase to £21.2bn on the same period in 2006.

Profits among the top five have been reduced by write-downs on investments worth £11.6bn in the first half of 2008, while fair value losses increased in the period due mostly to asset-backed securities.

Speculating on the result for the full year, UK banks’ immediate prospects appeared moribund. “Although the banks are large diversified businesses, they are not immune to the major forces affecting the economy and their customers. The outlook for the rest of the year and 2009 has to be cautious as there are few signs as yet that wholesale funding and securitisation will return in the immediate future,” said KPMG. “It seems likely that impairments will rise in personal lending, mortgages and in the corporate sector.”

The Exchequer suffered a considerable loss of income from the banks’ woes. KPMG said Barclays, Lloyds TSB, HBOS and Royal Bank of Scotland recorded a tax provision of £5.1bn in the first half of 2007 but that this shrank to £1.2bn in the first half of this year.