Royal Bank Of Scotland Group Plc (LON:RBS) wrapped up a week of impressive half-year banking results on Friday with news that the 84% taxpayer-owned group had made pre-tax profits of £1.14bn during the period. The figures followed expectation-beating results from the bank’s main rivals, including HSBC Hldgs (LON:HSBA), which doubled profits to $11.1bn, indicating that loan impairment charges of $7.5bn were the lowest since the start of the financial crisis. Barclays (LON:BARC) reported gross profit before tax up 44% to £3.95bn. Its impairment charges were down 32% to £3.08bn. Lloyds Banking Group (LON:LLOY) also scrambled its way out of the red, with profits of £1.6bn driven by revenue growth, lower costs and a significant reduction in impairment.
The results were welcomed by investors, with shares in all the main groups rising during the week. Arturo De Frias Marques at broker Evolution Securities maintained a “sell” stance on Barclays, claiming the stock looked fully valued, but otherwise reiterated a strong preference for Lloyds, Standard Chartered and RBS and said he was “very positive” on UK banks, with Barclays being the only “sell” in the space currently.
Taxpayers also started to look less exposed to the multi-billion pound bail out by the UK Government of certain banks during 2009, although some analysts remained sceptical. Professor Michael Ben-Gad, Head of Economics at City University London, said: “The fact that the RBS is no longer losing money reflects the overall recovery of the banking sector. Of course many will argue that these results demonstrate that the decision to invest £45bn was money well spent. I would suggest that beyond the serious problems of moral hazard that the bail out created, the money the government borrowed to bail out the bank helped generate the deficit crisis.”
Prof Ben-Gad also noted that UK taxpayers remain on the hook for £282bn in risky loans that the bank moved into the government's insurance scheme, which includes nearly all the first £60bn that RBS is theoretically responsible for itself. “Hence, since the UK government in effect indemnified RBS creditors, UK public finances face at least some risk should real estate prices (for example) in any parts of the world where RBS invested take a serious tumble,” he said.
Elsewhere, the banking results also served to sharpen the focus on whether the…
