Boom times are back as banks rake in £24 bn

MoS analysis finds Big Four profits soar 85% – to their highest since crisis began in 2007

BRITAIN’S top banks are poised to reveal their biggest profits since the financial crisis erupted in 2007, detailed analysis by The Mail on Sunday shows.

Figures out t his week are tipped to indicate that Lloyds, Barclays, HSBC and RBS made a combined profit of £23.9 billion last year – an astonishing 85 per cent increase on the previous 12 months when the figure was just £12.9 billion.

Lloyds will lead the way by revealing its biggest ever profit for a single year, according to a consensus of analyst forecasts.

The last time the four biggest lenders made more than £20 billion was 2007 – the year Northern Rock went bust – when profits hit a combined £26.4 billion.

Ever since then, the four have been weighed down heavily by legal costs, payment protection insurance compensation and various bills for mis-selling and misconduct. PPI compensation alone has wiped around £30 billion off their balance sheets, while legal settlements have cost them £ 49.3 billion since 2009, MoS analysis found.

These costs are finally starting to tail off as banks move on from a torrid decade.

Lenders were also boosted last year by rising wages, low unemployment and diminished price inflation in the shops, which helped to keep family finances buoyant. That created favourable conditions as fewer borrowers defaulted on their loans.

Experts said the return to the boom-era profits would enable all four banks to return huge sums to shareholders.

However, they warned that the u n c e r t a i n t y a r o u n d Brexi t loomed large and posed a signifi- cant threat to future profits and dividend payouts.

Ian Gordon, banking analyst at Investec, said: ‘One thing you are really going to see accelerating from now on is the level of capital r et urn f r om banks, whether through share buybacks or dividends.’

But Laith Khalaf, senior analyst at Hargreaves Lansdown, warned: ‘Banks are exposed to Brexit and any possible change in government.

‘So the thing that is really going to hold banks back is beyond their control. That explains why their stocks are near the bottom of investors’ lists at the moment.

‘However, if we do get a good Brexit outcome we should see a rally for RBS and Lloyds.’

Banks often highlight their pretax profits, but our analysis focuses on post- tax profit to reflect the final bottom line.

On Friday, 62 per cent taxpayer- owned RBS unveiled a 47 per cent rise in post- tax profits to £2 billion and announced plans to hand £1.6 billion to shareholders.

Of this, £ 977 million will be returned to the Treasury, its largest shareholder.

Global banking powerhouse HSBC is set to book post- tax profits of £12.7 billion, up 44 per cent from £8.8 billion the year before.

Barclays is tipped to reveal that it is returning £1 billion to investors through a dividend of 6.5p per share as it swings to a £4.6 billion post-tax profit.

However, these profits will be knocked by a £400 million charge for PPI compensation and a £1.6 billion settlement with the US Department of Justice.

Lloyds is on track to report record profits, with analysts forecasting a 30 per cent rise in post-tax profits to £4.6 billion.

The high street bank, which has been shelling out billions in compensation for mis- selling PPI, is also forecast by some analysts to announce a £2 billion share buyback, whereby the bank will repurchase shares to return value to investors. Barclays’ investment bank will also be in focus as chief executive Jes Staley battles with activist investor Edward Bramson, who wants to scale back the division.

Bramson has demanded a seat on t he board but r e qui r e s approval from Barclays’ shareholders. The year-end results are likely to form a key part of his pitch to win them over.

UBS analysts have forecast revenues in Barclays’ corporate and i n v e s t ment b a n k fell 2 per cent to £ 9.7 billion for the year.

However, the analysts forecast that profits rose 37 per cent to £2.6 billion for 2018, a boost that would help Staley as he seeks to defend the unit.