COMMENT: Banking hurdles | Spirits woes

Martin Flanagan
Martin Flanagan
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THE underlying financial health of Britain’s big banks is robust as the UK economic recovery holds firm. It would translate to impressive statutory profit numbers as well if they could only get out from under a succession of hefty financial provisions for previous wrongdoing.

These range from mis-selling of payment protection insurance (PPI), where “black horse” bank Lloyds yesterday took a fresh £600 million hit, to Libor and other rate-rigging, and selling inappropriate hedging products to small businesses.

As each new scandal drops, it seems that the banks are benefiting from the UK economic recovery but are running hard financially to stand still reputationally.

Lloyds has broken new immoral ground with this week’s revelations that, through the action of a few traders and managers, it was biting the hand that fed it by trying to rig rates to lower the bank’s payment for a financial lifeline given to it by the Bank of England during the crash.

Chief executive Antonio Horta-Osorio apologised unreservedly for the behaviour of those people alongside Lloyds’ latest results.

But, in the greater scheme of things, the latest figures from the industry show that trading conditions are more benign than they have been for six years since the financial crash, and should lead to big profits if so-called legacy issues can ever be put to bed.

Lloyds’ adjusted interim profits jumped not far off £1 billion to £3.8bn, and even with a raft of charges the bank still made a statutory profit of £863m. A restored divi doesn’t look distant.

Santander UK grew first-half profits 18 per cent to £545m, and TSB, newly spun off from Lloyds, said it has gained an impressive 9 per cent of new current accounts even if its costbase has shot up because it does not now have the economies of scale that its former parent had.

Royal Bank of Scotland also agreeably surprised the market last week with much better profits – about a billion pounds more than the City was expecting.

The banking industry is not out of the woods. Nobody knows when their flurry of past conduct issues will abate. But, big incumbent players and challenger banks alike are seeing enough to feed on to give them greater hope for brighter days next year and thereafter.

Same again from drinks industry’s new markets

THEre is nothing “emerging” about the drinks industry’s problems with what once looked a lucrative one-way bet on emerging markets. After the past year to 18 months it has rather become a case of deja-vu.

Diageo, the world’s biggest spirits company and whisky market leader, has announced a 10 per cent slump in interim operating profits and a similar fall in net sales.

Again, its emerging markets, particularly China due to a state crackdown on conspicuous consumption and gift giving, are under the cosh.

Again, the group, like many drinks rivals, affirms its longer-term faith in the aspirational middle class demographics and economic prospects for those emerging markets.

They are probably right to do so. If you believe in a business strategy you need to keep your nerve, and not be thrown off course by short-term problems.

But it is beginning to look like a longer haul to recovery in the erstwhile eldorado than the drinks majors once anticipated.