Yahoo Finance UK banks facing further big hits for US fines, PPI payouts, and Carillion collapse
Britain's large lenders are expected to announce a further wave of major write-downs this week as they count the cost of losses on loans to bust builder Carillion, mis-selling compensation and US fines.
Write-downs on lending to Carillion are expected to top £1bn across the banking industry by the end of the week, with RBS, Barclays, Lloyds and HSBC all expected to make hefty provisions in their 2017 results.
Santander and the UK arm of Swedish lender Handelsbanken led the way by booking around £250m of losses on Carillion loans in recent weeks. Lloyds began making provisions at its third quarter results with a £270m charge, amid signs of distress at Carillion.
The big four banks are also expected to set aside more money for compensating customers mis-sold payment protection insurance.
There has been a spike in claims following a Financial Conduct Authority ad campaign featuring the disembodied head of Arnold Schwarzenegger last summer, with more campaigns planned.
Looming litigation costs have dampened hopes of a dividend hike at Barclays or a return to payouts for investors in taxpayer-controlled RBS, with both facing multi-billion pound fines in the US for mis-selling toxic mortgages in the run-up to the financial crisis.
Whether or not RBS makes a provision for its fine – which is expected to be more than $6bn (£4.3bn) – could make the difference between a first net profit since the financial crisis or a tenth consecutive annual loss. It currently has £2.8bn set aside.
Any major increase in the provision would likely push it into the red despite three previous quarters of healthy profits.
Analysts expect Lloyds chief António Horta Osório to deliver good news in the form of an increased dividend, alongside a new three-year strategy for the bank.
The strategy is expected to include an investment plan of around £3bn to accelerate the development of new digital banking products and boost its insurance arm.
Lloyds’ insurance division, which includes Scottish Widows, showed a more assertive approach last week when it pulled £109bn of assets from rival Standard Life Aberdeen.
Ian Gordon, analyst at Investec, said he had pencilled in a Lloyds dividend hike from just over 3p last year to 4.5p for 2017 and up to 5p for 2018.
“It will be interesting to see what Lloyds does with its surplus capital,” Mr Gordon said. “It might choose to up its dividend or a share buy-back.”
Mr Gordon said he did not expect a similar story at Barclays due to the impending US fine and “what is expected to be a weak fourth quarter for the investment bank”.
Barclays chief executive Jes Staley’s position could come under further pressure if there are few signs of improvement in fortunes for Europe’s worst performing bank stock last year. HSBC kicks off the flurry of results on Tuesday with what will be chief executive Stuart Gulliver’s last day in the office before he hands over the reins to retail banking boss John Flint.
The bank’s fortunes in Asia – where it generates 70pc of its profits – will be watched closely by investors.
