Rock rivals shrug off crisis with profits leap

Three of the largest retail banks are set to report their profits for 2007 this week and at least two of them are expected to cheer investors with inflation-busting rises in their dividends.

The big eight banks listed on the London stock market are expected to reveal that they made total profits of £41.5 billion last year - a significant rise on 2006's record £40.5 billion profits - despite the fact they were battered by the credit crunch for the last six months of the year and are now one fewer in number.

At the same time, the banks are preparing to take on Northern Rock under its new public ownership and are all prepared to shout foul if they believe the new management under Ron Sandler uses its Government backing to compete unfairly against them.

The European Commission, which still has to give the go ahead for nationalisation, will monitor the Government's ownership of Northern Rock closely to make sure it does not amount to illegal state aid.

Shares in Barclays (up 181/2 to 446p) and Lloyds (up 141/4 to 410p) soared today as investors bet that they will lead the way with good news this week. There is also relief among bank investors that Northern Rock is more likely to be a lame duck under state ownership than the powerful competitor it might have been under Virgin.

John Varley, chief executive of Barclays, has seen his bank's share price fall more than 40% in the last year after he lost out in the e70 billion (£52.6 billion) bid battle for Dutch bank ABN Amro. Analysts expect the bank to announce write-offs totalling £1.5 billion from subprime exposure tomorrow, but that is far less than most of its US and European rivals.

Barclays Capital, under its boss Bob Diamond, kept reassuring the stock market through the worst of the credit crunch on a monthly basis that it continued to trade well.

The City believes Barclay's profits will come in slightly below or possibly slightly ahead of last year's £7.1 billion. Varley is set to give his usual upbeat assessment of the future and will put his money where his mouth is with a potential dividend rise of 10%.

His opposite number at Lloyds, Eric Daniels, long ago pinned his colours to the progressive dividend mast. Of all the UK banks Lloyds is the least exposed to subprime fallout. Analysts expect it to at least match the 5% dividend rise made with its half-year results when it announces full-year figures on Thursday. Profits are likely to have risen to just short of £4.4 billion.

Alliance & Leicester will probably be worst hit by the credit crunch when it reports on Wednesday. It has already warned that writedowns of £185 million will push profits down severely in 2007. Analysts expect a drop from £598 million to around £400 million.