Since the 2008 sector crash, banks’ headline figures have often borne virtually no relation to underlying trading because of a welter of massive restructuring charges, soaring bad debts and regulatory fines for mis-selling.
From the partly taxpayer-owned banks like Lloyds and Royal Bank of Scotland to Barclays, HSBC and Santander and mutuals like Co-operative Bank, it has resulted in a confusing mish-mash of contradictory figures.
It has not been unusual for banks to be profitable at the operating level, but making billions of losses when exceptional items – which, ironically, have become unexceptional since the crash – were included.
Further opaqueness was caused by banks splitting off the profits and losses they made from what they deemed toxic or non-core assets.
Having a “bad bank” within the wider group figures to become a lightning rod for critical media coverage almost became a must-have fashion statement in the sector, particularly at Lloyds and RBS. But the pretty closely aligned pre-tax and underlying numbers from Lloyds show that, at least in its case, predictable pre-crash trading looks like it has been resumed.
This clarity will be underlined when the bank’s TSB subsidiary is floated on the stock market within the next eight weeks, and when the first dividend payments are probably resumed at Lloyds in May 2015 after talks with the regulator later this year.
Looking at the group’s restored profitability, heftier capital cushions, and simpler retail and commercial banking business model, it is unlikely the Prudential Regulation Authority will raise many objections to dividends being resumed.
The dividend was frozen for good reason when the taxpayer had to bail out Lloyds after its disastrous acquisition of HBOS at the height of the financial crisis.
But the government’s steady reduction of its stake in the bank to 25 per cent, from a high-water mark of 40 per cent and with every prospect of it coming down farther this year, is further evidence that chief executive Antonio Horta-Osorio has indeed virtually returned the bank to normality.
Mixed signals on the ‘legs’ of any recovery
LATEST data showing that UK house prices rose just under 11 per cent in the year to March pours fuel on the flames for those worried that Britain’s economic recovery is built on a deck of cards.
There is a hint of Back to the Future about that latest annual rise being the biggest since June 2007. That was just before the start of the financial crisis when wholesale financial markets froze up and, to adapt Warren Buffett’s phrase, the tide went out and Northern Rock was found to be swimming naked.
But house prices fever is not as clearcut an indicator of impending doom as it seems. Other data shows many people are paying down their debts and, austerity-chastened, are refusing to take on more.
Perhaps we are seeing a stark social polarisation. Home-owning greybeards are sitting pretty as house prices rise. But those who cannot afford them are saving, and business confidence to invest is rising. Hopefully, the two latter factors will mean recovery is sustainable.