British Banks Have Worries Beyond Coronavirus
30 Luglio 2020 - 2:55PM
Dow Jones News
By Simon Clark
The coronavirus pandemic pummeled British banks in the second
quarter as many companies struggled to reopen and individuals
reduced spending and deferred payments on loans. The industry is
also grappling with Brexit and the increasing likelihood of
negative interest rates.
Lloyds Banking Group PLC shares fell as much as 9% Thursday
after the London-based lender said it swung to a GBP461 million
($598 million) loss in the second quarter because of the impact of
the pandemic. Lloyds, Barclays PLC and the U.K. unit of Banco
Santander SA increased loan-loss charges in the three months ended
June, compared with a year ago.
The U.K. has been hit hard by the coronavirus, with the highest
number of reported deaths in Europe. It was slower to unlock and
its economy has had less time to regain its footing than places
such as France and Germany.
The challenging economic conditions add to uncertainty facing
British banks as politicians try to reach a trade agreement with
the European Union. The European Banking Authority this week
reminded lenders that the transition period for Britain's EU exit
expires at the end of the year. The U.K. and EU have yet to strike
an agreement on their future trade relationship.
Coutts, a unit of state-controlled NatWest Group PLC which
provides banking services to wealthy people including Queen
Elizabeth II, told clients on July 27 that it would stop lending to
EU residents because of the lack of a trade agreement.
Another complication facing U.K. banks: The Bank of England has
shifted its tone in recent months toward possibly using negative
interest rates, which can squeeze bank profitability. In
anticipation of such a move, a swath of U.K. government bond yields
are already in negative territory, while the benchmark 10-year gilt
yields just 0.08%.
"There is a highly uncertain environment out there," Lloyds
Chief Executive António Horta-Osório told journalists.
Lloyds was the worst performer on the Stoxx Europe 600 Banks
index in early trading on Thursday.
Unlike rivals such as Barclays and HSBC, which have large
overseas operations, Lloyds's business is concentrated in the U.K
and is most vulnerable to conditions there. The bank set aside
GBP2.39 billion for bad loans in the second quarter, more than
seven times the same period last year, adding to GBP1.43 billion
set aside in the first quarter. Lloyds expects to set aside as much
as GBP5.5 billion this year.
Santander on Wednesday reported a massive EUR12.6 billion ($14.8
billion) charge for lowering valuations of some previous
acquisitions in the wake of the pandemic. About half of the charge
came from its U.K. business, which is exposed to mortgage lending,
where margins are being squeezed.
Barclays said Wednesday that its U.K. unit lost GBP123 million
in the second quarter, down from a profit of GBP328 million in the
same quarter last year. A better performance from Barclays's
corporate and investment bank enabled the lender to report a small
overall profit for the quarter.
Barclays Chief Executive Jes Staley said his strategy of
maintaining a diversified business with international exposure was
working. He has been under pressure from activist investor Edward
Bramson, whose firm Sherborne Investors has said it wants Barclays
to shrink its investment bank and become a more narrowly focused
consumer bank.
"The reason that we have been able to support the economy as
extensively as we have and remain financially resilient is because
of our diversified universal banking model," Mr. Staley said
Wednesday.
Standard Chartered PLC, which is based in London but does most
of its business in the faster growing economies of Asia, said
Thursday it made a $549 million net profit in the second
quarter.
Write to Simon Clark at simon.clark@wsj.com
(END) Dow Jones Newswires
July 30, 2020 08:40 ET (12:40 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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