ROYAL Bank of Scotland and Lloyds Banking Group will unveil further big losses next week following another year of scandal.
RBS is also likely to reveal plans to further shrink its investment banking business and hint at a possible £10 billion sale of its Citizens operations in America.
It is understood the bank is looking at a flotation or sale of a stake in Citizens which employs more than 18,000 in 12 states and made a £479m profit in 2011.
The annual results come amid political pressure for RBS to be returned to the private sector after Prime Minister David Cameron urged the bank’s bosses to “accelerate” the process of preparing the company for the switch.
Taxpayers are still sitting on a paper loss of around £14 billion as shares remain below the 500p break-even price paid by the government.
There is also speculation that RBS, which reports on Thursday, has hit further troubles in trying to offload 316 branches to appease European Commission rules on state aid.
Following the collapse of the sale to Santander, RBS is now looking at a range of options, including a possible flotation. The bank privately admits that it will not meet the year-end deadline for a sale and will require an extension.
Lloyds, which follows with its results on Friday, is also facing rumours over its branch sale amid doubts the deal with the Co-operative will succeed in time.
Bonuses will also be in sharp focus for the group, which is 39 per cent owned by the government, amid speculation that chief executive Antonio Horta-Osorio could be in line for as much as £4.4 million.
It is thought the bank will hope to defuse a row by holding back the award until shares are above the average price paid by the state under the bank’s 2008 bailout. The shares trade at about 56p, still well below the average break-even price of 74p, or around 64p when fees paid by Lloyds to the Treasury are taken into account.
Most analysts are expecting pre-tax losses at Lloyds of £544m after mis-selling charges, although Ian Gordon of Investec Securities is pencilling in a £1.4bn loss.
He is expecting a further £700m in payment protection insurance (PPI) provisions in the fourth quarter alone, with around £200m for interest rate swaps. This would take the total paid in compensation over PPI mis-selling to £5.3bn.
Analysts are forecasting underlying pre-tax profits of £2.4bn, up from £638m in 2011.
The bottom-line losses would also be an improvement on the £3.5bn slump in 2011.
RBS will distribute a reduced bonus pool of about £300m, having clawed back a similar amount from past and future payments to help pay for its £391m fines over rigging Libor, the interbank rate.
The bank will report an operating profit of about £3.5bn but Investec’s Gordon is expecting compensation provisions for mis-selling to plunge RBS deeper into the red with a pre-tax loss of between £5bn and £6bn in 2012 – far worse than the £766m loss reported for 2011.
RBS, which is 81 per cent owned by the state after a £45.5bn bailout at the height of the financial crisis, disclosed in November that it was taking an additional £400m in claims relating to PPI.
It also revealed a further £50m to cover its computer system failure, which left millions of people without access to their bank accounts, while it is facing further financial pain as the scandal unfolds over mis-selling of interest rate swap products to small businesses.