BRITAIN’S banking sector has plunged to tenth in the world, below France, Brazil and Russia, driven by losses suffered by the likes of Royal Bank of Scotland and Lloyds, a new report reveals.
The Banker magazine’s annual Top 1,000 World Banks revealed the UK’s annual profits plunged by 41 per cent in 2012.
RBS recorded pre-tax losses of almost £5.5 billion, 660 per cent down on the previous year, the fourth-highest of any bank in the world. The three banks with bigger pre-tax losses than RBS were all Spanish.
Lloyds Banking Group, meanwhile, recorded a pre-tax loss of £590 million – not quite enough to earn a place in the 25 worst performers in that category.
Its performance will be carefully watched by the UK Treasury, which is considering selling its 43 per cent shareholding in the group.
The Co-operative Bank, which recorded pre-tax losses of almost £700m, came 25th. It is seeking to plug a £1.5bn hole in its balance sheet.
The Banker said the joint performance of these institutions was a key reason behind the UK’s slump in the rankings.
Editor Brian Caplen said: “UK banks especially HBoS [now part of Lloyds] and RBS were highly profitable before the crisis as they had low capital.
“But then many of the assets they held – US subprime in the case of RBS and commercial property in the case of HBoS – had to be written off.
“These losses came straight out of capital and they soon used it up, hence why they were rescued by the government.
“Since then Lloyds and RBS have been desperately selling or disposing of assets and raising capital to make themselves viable as banks. They are still struggling to make a profit because they have less assets and more capital.
“And they are being hit by PPI misselling and Libor fixing fines and the general low interest rate environment that makes their margins [the difference between deposit rates and lending rates by which banks make their returns] low.”
In 2008, prior to the crash, the UK’s banking sector had been rated second in the world by the respected magazine.
Mr Caplen said: “UK banks always used to outperform in the rankings, but for the past several years they have been slipping back.
“The most successful British banks – HSBC and Standard Chartered – rely on earnings from Asia and other emerging markets to maintain their position.”
China performed strongest internationally.
The Industrial Commercial Bank of China rose from third to first in the main ranking, based on core capital, taking top spot from Bank of America.
It also came top for pre-tax profits, raking in £28bn in 2012.
HSBC was the UK’s best performing bank. The bank’s “tier-one” assets – “core capital” such as common stock, a form of security – was worth £99bn, putting it fourth overall, and pre-tax profits were £14bn.
The figures were announced today, as Canadian Mark Carney took over as the new governor of the Bank of England.
Business analyst Bill Jamieson, said the UK’s fall down the rankings would not surprise Mr Carney, but underlined the challenge the sector faces.
“I don’t think it is an immediate problem for him, or one he does not already know about,” Mr Jamieson said. “His brief is not about improving profitability of UK banks as much as making sure they are prudently run and well regulated. How they perform in terms of profit will be up to them.”
He added: “It might be of more interest to George Osborne. He is very keen to get Lloyds back into private hands.”
The UK government owns 81 per cent of RBS, following a £45bn bailout in 2008, but Mr Osborne appears to be keener on a sale of Lloyds, which could start before the next election.
In his keynote Mansion House speech in the City of London last month, the Chancellor said: “Lloyds is in a good position. Investor interest is growing. And shares are already trading at around the price where selling would reduce the national debt.”
Yesterday, the Treasury said that, while it “noted the impact of this report”, it was unlikely to have a huge bearing on the Chancellor’s thinking in relation to a Lloyds sell-off.
A spokeswoman said: “He is actively looking at ways to return it to the private sector, but that will be based on value for money.”
One report will not sway his thinking, she added.
The Banker’s report highlights how far the UK has fallen since prior to the crash, when the likes of RBS were considered world-leading institutions.
Combined profits of British banks dropped to £12.9bn in 2012 – five years ago they stood at £56bn.
Asian-facing Standard Chartered, in 33rd place, is the only major British bank to improve its performance in the ranking after profits rose 3 per cent.
Even the UK’s top performing banks, HSBC and Barclays, saw falls in profits.
UK banks accounted for nearly 11 per cent of global profits in 2007, but now only account for 2.61 per cent.
The rest of the financial world is not taking so long to recover.
The annual ranking showed that total profits of the top 1,000 banks are now back to their pre-crisis levels.
Mark Carney takes over today as governor of the Bank of England, and one of his first tasks will be to chair Thursday’s interest rate meeting, amid mounting speculation over his plans to keep the recovery on track.
The Canadian is widely expected to push for a more activist stance towards monetary policy, but it is thought he will hold off from leading a major offensive so soon after taking on the job.
Experts believe the nine-strong monetary policy committee (MPC) will keep quantitative easing (QE) on hold at £375 billion, as the recovery appears to be gaining traction, while rates will remain at 0.5 per cent.
Despite his aims to achieve “escape velocity” for the economy, Mr Carney is not expected to go out on a limb and risk being defeated just four days into the job. His predecessor, Sir Mervyn King, and two other MPC members have been outvoted five times in calling for more QE.
As Sir Mervyn said last week, while Mr Carney may be more “persuasive”, he is only one of nine policymakers who will vote.
The recent pick-up in the economy has given Mr Carney some breathing space from taking urgent action, with growth of 0.3 per cent in the third quarter and 0.5 per cent expected in the second quarter. Revisions by the Office for National Statistics also meant the double-dip recession at the end of 2011 and start of 2012 was erased from history.
More cuts are on the way, warns Tory minister
Cabinet Office Minister Francis Maude has insisted there are “definitely more” government cuts to come on top of the
£5 billion in “efficiency savings” set out for the first year of the next parliament.
The Tory MP said the government had already saved £10 billion over the past year from “unglamorous” areas such as job cuts and renegotiating services, but he suggested there was still plenty of room to root out unnecessary spending across Whitehall.
Mr Maude admitted some of the ways in which cash would be clawed back, such as halting civil service automatic pay progression, were “not without their controversy”.
He said: “There’s more to come. Frankly, even if it was the most efficient organisation in the world, there would be more to come.
“The best organisations find efficiency savings every single year, because that’s just what you do. The best companies do this every year so there’s definitely more to come and we are nowhere near the most efficient organisation in the world.
“Last year alone, the year to March, we took out £10 billion of efficiency savings. This is from the unglamorous part of running an organisation – it’s getting out of properties we don’t need to be in, it’s by reducing our headcount, it’s by renegotiating contracts with our biggest suppliers, it’s by moving services online so they are being done in a way that’s convenient for the citizen, for the user of the service as well as being much, much cheaper for the taxpayer.”
The £5bn of fresh efficiency savings account for nearly half the £11.5bn in total savings set out by Chancellor George Osborne in the 2015-16 spending round last week.