Banks setting aside billions to cover lockdown-hit loans
ANALYSTS will be racing to discover the cost of bad loans for the country’s lenders as all but one of the four big banks present their figures this week.
They are expected to write off billions in loan impairments for the second quarter of the year, following a similar move across the pond.
The big four banks in the US took $33billion (£25.8billion) in charges to cover the loans they think could go bad from the second quarter – the highest figure since 2009 amid the financial crisis, says AJ Bell investment director Russ Mould.
Barclays already took a £2.1billion charge for potential losses in the first quarter of the year and analysts are now expecting an additional £1.4billion blow on Wednesday.
Mr Mould said: “To give Barclays its due, [its investment banking arm] performed strongly in the first quarter and it should really have made hay between April and June, too.
“A further strong performance should lessen the heat a little on chief executive Jes Staley, whose commitment to the investment bank seems unwavering, despite the pressure brought to bear by activist investor Sherborne, which has called for capital to be taken away from investment banking and allocated to other areas of the bank where returns are less volatile.”
Mr Staley has often argued in favour of the investment arm, which is able to shoulder some of the burden in a crisis when retail banking struggles, as is happening today.
Similar impairments are expected at Lloyds, which analysts believe will take a £1.5billion blow from bad debt in the second quarter of the financial year in its results on Thursday.
It comes on top of a £1.4billion charge in the first quarter of the year.
But the consensus, which is an average, hides a lot of variation in many of the impairment predictions for most of the banks.
For instance, experts at investment banker Keefe, Bruyette & Woods believe Lloyds might present an impairment of more than £2billion for the quarter – something that could push the bank into a loss.
While the analysts are trying to figure out what the banks will set their impairments at, even the figures that the banks themselves will present will just be an educated guess.
The forward-looking measures are much more about what banks expect will happen, rather than based on lost business today.