British banks “still have plenty of skeletons left in the cupboard”, said Jonas Crosland on Investors chronicle.co.uk. HBOS this week announced that write-downs and losses on bad debts in the first nine months stood at £5.2bn, more than double the £2.5bn figure announced for the first six months. Upheaval in the credit markets caused almost £2bn of losses between January and September; with exposure to Lehman Brothers and Washington Mutual causing the most recent problems.
Meanwhile, HBOS is “reaping a bitter harvest from having piled into lending” to property and housebuilding companies, said Robert Peston on BBC.co.uk. The charge for loans going bad jumped by £1.3bn in the third quarter alone, which also accounts for around half 2008’s charge on bad mortgages. The overall pattern here is that “plain vanilla recessionary write-downs”, as Jeremy Warner put it in The Independent, are set to rise as the economy shrinks, replacing losses on asset-backed securities, which will gradually fade.
RBS heads for first-ever loss
That’s also evident at RBS, which appears on track for the first full-year loss in its history. The bank, which is raising £15bn through a share issue underwritten by the Government, as well as selling the state £5bn in preference shares, wrote down another £206m (the sum would have been £1.2bn without accounting changes) and said impairment charges for UK small business clients jumped by 9% in the first nine months. With firms currently unable to borrow their way through the downturn due to the credit squeeze (reports suggest even sound small firms are being refused credit) there’ll be plenty more bad news to come on the corporate front.
Barclays shareholders see red
The other bank where the Government is set to own a large stake, Lloyds/HBOS, has managed to sweeten the terms of its acquisition of HBOS for shareholders. It had looked as though dividend payments could not be resumed for five years, but as a result of the latest discussions with the Government it should be able to repay them soon after the HBOS takeover is consummated.
“This may leave a rather sour taste in the mouth for Barclays shareholders,” said David Wighton in The Times. It decided to forego Government cash in order to give it freedom of manoeuvre on dividends and strategy. But now Lloyds is set to resume its dividend at the same time as Barclays – which has just secured more expensive funding from the Gulf. As Lex said in the Financial Times, the price Barclays is paying to exercise its right to “self-determination” is looking “steeper and steeper”.