Britain’s major banks will be in the spotlight this week as they unveil their full year figures, with Royal Bank of Scotland forecast to make losses of more than £6bn and HSBC expected to face questions about a boardroom overhaul.
The controversy over bankers’ pay is likely to be reignited as they disclose the size of their bonus pools and how much their bosses have received during a year when the vote for Brexit has helped turn the government’s attention on public anger over rising executive pay.
RBS will continue to remain a major focus as its loss for 2016 will mean it will have spent nine years in the red since its taxpayer rescue in 2008. The loss is likely tobe £55bn – more than the £45bn that was pumped in by the Treasury to stop the Edinburgh-based bank collapsing.
In contrast, Lloyds Banking Group – bailed out at same time and is almost free from taxpayer support. Barclays and Standard Chartered also report the first full year results since the cut in interest rates after Brexit, which puts pressure on banks’ profitability.
“Bank results look like they will be a mix of the good, the bad and the ugly this time around. Litigation still looms large, particularly for RBS which has a plateful of problems to digest, while low interest rates continue to present a challenge for the core business of banking,” said Laith Khalaf, senior analyst at Hargreaves Lansdown.
The Treasury will also face scrutiny of its plan announced on Friday to free RBS of its obligation to Brussels to spin off 300 branches. Instead of meeting state aid rules by selling the network – which was dubbed Williams & Glyn – the Treasury has proposed that RBS adopt other measures to inject competition into the small banking market at a cost of £750m.
If approved, the deal with Brussels over small business banking will remove one of the key uncertainties which have been depressing the bank’s share price. The shares closed at 242p on Friday – less than half the 502p average price that taxpayers paid for a 79% stake and before the deal over W&G was announced.
Clarity over the state aid obligation would resolve one of the hurdles chancellor Philip Hammond cited last year when he abandoned any hope of selling off any more shares in RBS – in which the stake is now 73% after parcel of shares was sold in 2015. Among other issues raised by the chancellor is the uncertainty over a settlement with the US over a toxic bond mis-selling scandal and last month the bank took a £3.1bn hit in preparation for this.
Gareth Thomas, the MP who chairs the Co-operative Party, said it would have been better to convert W&G into a mutual. “Whilst there have been many reforms the lack of competition in British banking is worse now than in 2008 and the re-privatisation of RBS will only make that worse,” said Thomas.
Among the ideas the Treasury has proposed to Brussels is a fund for so-called challenger banks to the big four of RBS, Lloyds Banking Group, Barclays and HSBC as well as dowries to help them encourage small businesses to switch from RBS.
OakNorth Bank, one of the challengers, pointed out that 80% of small businesses bank with the big four. Rishi Khosla, chief executive of OakNorth, said: “It’s important that this fund doesn’t just focus on current accounts, but that it is used to increase challenger banks’ capabilities to deliver a range of products and services, including short and long-term business loans”.
HSBC kicks off the reporting season on Tuesday after a 55% rise in its share price since the referendum, fuelled by the fall in sterling as it makes most of its profits abroad.
Also on the agenda is the boardroom changes HSBC promised a year ago when chairman Douglas Flint said the bank hoped to nominate his successor in 2017 who in turn could start the planning for a new chief executive.
Gary Greenwood, banks analyst at Shore Capital said there may be questions for “more clarity” on succession planning at HSBC. One investor said that as it was one of the biggest companies in the world the bank should be able to keep its pledge while Jeannette Andrews, corporate governance manager, at Legal and General Investment Management said the firm had welcomed the commitment “ from HSBC last year to appoint an independent chairman to the board in 2017.”
Brexit may loom large over the banking results. “Both HSBC and Standard Chartered have benefited from currency tailwinds, as has Barclays which is also seeing restructuring starting to finally gain traction. Lloyds still remains in decent shape, though it’s the canary in the coalmine as far as Brexit is concerned, given how thoroughly it is plugged into the grass roots of the UK economy,” said Hargreaves Lansdown’s Khalaf.