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City chiefs urge caution over banking profits rally
Jim Armitage and Simon English4 Aug 2009
Banking heavyweights today warned the sector's recent run of strong profits should be viewed with extreme caution.
Terry Smith, pugnacious chief executive of dealing house Tullett Prebon, regarded as one of the Square Mile's premier analysts and soothsayers, dismissed bank returns such as those enjoyed by Barclays and HSBC as a “blip”, while UBS bosses warned they were wary about the coming months.
They were speaking as Asia-focused Standard Chartered reported far better profits than expected and announced plans to raise £1 billion to capitalise on what it sees as an improving market, a sentiment adding to the bumper figures from Barclays and HSBC yesterday.
But Smith said of the British banks: “They were always going to make a lot of money at this point. They have less competition than they had before and interest rates are low. But rates are going to have to go up and we have not yet seen the end of the loan losses.
“We might have seen the peak of losses on toxic assets but we will now see big losses from prime loans, from customers who would normally be creditworthy. The profits of late are a temporary blip.”
Meanwhile, banking giant UBS, whose investment banking arm in Broadgate is one of the City's biggest employers, struck a cautious tone as it saw losses hit Swfr1.4 billion (£781 million) in the last quarter.
“Overall, our outlook remains cautious, consistent with our view that economic recovery will be constrained by low credit creation and the structural weakness in consumers' and governments' balance sheets,” warned chief executive Oswald Gruebel.
Those comments chimed with today's awful picture of the British consumer's financial straits painted by Northern Rock, which dashed hopes of a quick return to the private sector after racking up first-half losses of £724.2 million.
There had been speculation the government would want to announce plans to offload the taxpayer-owned bank before a General Election, but chief executive Gary Hoffman said: “There is no process, no discussions and no timetable.”
Standard Chartered was far more optimistic, however, thanks to its focus on the Asian region.
Chief executive Peter Sands unveiled plans to raise £1 billion through a share placing and declared that, in his markets at least, the bank was through the worst.
“We're raising this money because we see the recession in Asia as being shorter and shallower than other parts of the world.”
Reader views (3)
Creative accounting; again.
You could say Northern Rock is a great success with every six out of ten customers in the black etc.
It’s just a matter of interpretation, statistics, and creative accounting etc.
- Mickinlondon, london., 04/08/2009 12:29
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Hello London,
Britain is sinking faster than the Titanic, the highstreet lending is in slow-mode, and the big profits made by two banks Barclay and HSBC were made in investments abroard.
This is no time for celebration, as Northern Rock it's in bigger trouble nearly a £800 million loss, and it's tax-payers money.
The Bank of England base rate may be low at 0.5% but the highstreet retail lending is high to make money for fatcats and bonuses and profits, it is this that has to stop.
The Government has no money it relies on Joe Public to bail out it's problems, the unite couple Tax and Payer gets it in the neck every which way.
The word FAIR must come into it and at the moment it's not fair, families are splitting, jobs by the shed load are being lost, the young can't find work, and jobs of good wages are hard to find, so as I said from the start of my comment, we are sinking faster than the Titanic.
- John L., Scarborough N.YKS. England. U.K., 04/08/2009 11:19
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Yes, scepticism is wise. The profits at Barclays and HSBC have, of course, come in their investment banking areas. One fears that if they're in profit they must've been up to their old tricks again. But the traders and senior managers will, no doubt, be quick, as ever, to congratulate themselves by giving themselves large bonuses. Investment bankers, parasites all, like to kid themselves that their cynical self-serving wheeling and dealing is actually beneficial to the world economy because it increases the flow of credit. Wasn't the bubble was caused by there having been too much credit? But that aside, it's an absurd hypocrisy that they should congratulate themselves so but not without precedent, of course. In the days of the British Empire those who ran it asserted, in their conceit, pomposity and self-delusion, that it was beneficial to the world when, in fact, it was a cynical machine for exploiting millions of people - George Orwell said simply that the empire was a racket. So too is investment banking a racket but in so rarified and self-congratulatory an atmosphere does its financial elite live that they, even today after all the hurt they've caused, carry on massaging each other's egos seemingly unaware of the contempt of ordinary, honest, productive working people. They must be reined in urgently with stricter controls before they bankrupt us all again.
- Richard Kennard, Welling, 04/08/2009 10:31
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