Backing the banks: risky business or right time?

All the major High Street banks have published their annual results – alongside multi million pound bonuses and eye watering bills for mis-selling. There is talk that the public may be offered shares in RBS after the election, and the other banks are keen to show they are recovering after the crisis. Regulators have insisted on a host of measures to make them financially more robust, and balance sheets are in better shape. But is now really the time to get back into banks, or is it still too risky? JAMES SALMON reports.

RBS

THE state backed lender slumped to a £3.5bn loss in 2014, its seventh consecutive year in the red since the financial crisis.

But the vast bulk of this was due to a £4bn ‘write off ’ related to its US arm Citizens, which it is in the process of selling.

This reflected the fact that it paid too much for the business.

More worrying were a further £2.2bn of provisions for wrongdoing including for foreign exchange rigging and payment protection insurance.

Stripping all this out, the underlying health of the bank is improving, as it posted an operating profit of £3.5bn – its highest since 2010.

Unfortunately, unlike Lloyds, the prospect of a resumption of dividends is some way in the distance.

It also has plenty of painful restructuring to go, including further shrinking of its investment bank with up to 14,000 job cuts.

And it faces a multi-billion pound settlement in the US over the sale of toxic mortgage- backed securities in the run up to the financial crisis. VERDICT: Steer clear.

LLOYDS

CONFIRMATION that Lloyds plans to resume paying dividends – albeit a token 0.75p a share – will be welcome news f or almost t hree million shareholders.

It instantly makes the bank more attractive for investors. Lloyds bosses have also made it clear that they plan to increase payouts significantly over the next few years.

Lloyds has had more than its fair share of fines and legal costs – most notably its £12bn bill for mis-selling PPI.

But there are fewer skeletons left in the closet compared with, say, RBS.

If the UK economy continues to do well then Lloyds should prosper as it is so focused on its home market and has a dominant market share, with 30m customers.

The cautionary note is that Lloyds has already recovered strongly, with shares more than trebling in value over the last three years from 25p to just over 81.43p.

Which means if you’re after spectacular returns, you may have missed the boat. VERDICT: A solid bet on UK recovery.

BARCLAYS

THE High Street giant is another mixed bag.

Again huge fines and provisions have overshadowed some genuine progress, with statutory profits ( bad stuff included) falling by 21pc to £2.3bn.

Returns at its investment bank have been anaemic with profits diving 31pc as tougher regulations, low interest rates and falling demand continue to take their toll.

Its decision to maintain the dividend at just 6.5p was also disappointing. Analysts are encouraged that chief executive Antony Jenkins – like his counterpart at RBS – is radically shrinking the investment bank and focusing more on its strengths in retail and corporate banking, as well as Barclaycard. There are big fines to come, with almost £1.3bn for the for- eign exchange-rigging scandal. But Richard Hunter from Hargreaves Lansdown Stockbrokers believes the worst of the scandals are behind it and describes Barclays as the ‘pick of the bunch’.

Shares have jumped almost a quarter since October to 265p, but they remain relatively cheap – the market value stands at a discount to Barclays’ assets.

This is why analysts, such as Investec and Shore Capital recommend buying them. VERDICT: Worth a punt for those with a strong stomach.

HSBC

THE High Street giant has been battling allegations its Swiss Private Bank helped wealthy clients duck taxes.

To add to its woes, profits fell 17pc to £12bn last year as its investment bank struggled and it was hit by big write-offs.

Like its rivals it has been shrinking its business and cutting staff.

Shares have slumped by 9pc over the last year to 568p.

But as Ben Yearsley of broker Charles Stanley points out, it remains the ‘one truly global bank’ on the High Street as its rivals focus on the UK and shrinking their investment arms.

He said: ‘HSBC is strong in the UK and strong in Asia, which is still a long term growth market’ VERDICT: Not worth the risk.

STANDARD CHARTERED

ONCE a darling of the stockmarket, the emerging markets specialist boasted ten consecutive years of record profits.

This now seems like a distant memory as the lender recently posted a 30pc fall in profits for last year, following a decline in 2013.

Shares have fallen by 19pc over the last year to 1024p.

The bank has launched a major overhaul, including replacing its long standing chief executive Peter Sands, slashing costs and cutting thousands of jobs.

The big question for investors is whether this will enable Standard Chartered to recover some of its former glory.

Experts point out that its core emerging markets in the Far East and Asia still have huge potential.

VERDICT: Too much uncertainty.