British lenders write off one ‘Barclays’ in first-half mayhem

Bloomberg

British lenders have offered a taste of how much the worst recession in centuries is going to cost. The bill’s already at $22.4 billion.
Write-offs at the country’s six biggest banks so far this year roughly equal Barclays Plc’s current market value.
“There’s likely more of that to come, and with low interest rates dragging on revenues, full year profits will not be pretty,” said Nicholas Hyett, analyst at Hargreaves Lansdown Plc.
The provisions are required under accounting rules, but also reflect concerns about how British households are going to cope with what the Bank of England has said could be the worst downturn in 300 years. For some borrowers, “servicing will become more difficult,” said Katie Murray, chief financial officer at NatWest Group Plc, which booked 2.1 billion pounds in charges in the second quarter.
Lloyds Banking Group Plc’s profit for the period was wiped out by a 2.4 billion-pound provision. Lloyds expects to set aside between 4.5 billion pounds and 5.5 billion pounds this year, hinting that the largest provisions have already been taken.
While most lenders are warily sizing up the economic turmoil, it has been an especially costly quarter for banks with British operations. The UK is being hit by a pandemic at the same it is negotiating its exit from the European Union, its biggest trading partner.
Barclays took a 1.6 billion-pound charge, more than analysts anticipated. “There has been extraordinary economic contraction, especially in the US and UK,” Chief Executive Officer Jes Staley said. The bank, whose bleak outlook was counterbalanced by a surge in trading gains, said impairments in the second half would begin to fall.
These predictions on future provisions depend on how the economy fares as British leaders try to reopen the country while avoiding a feared winter spike in Covid-19 cases.

Four months ago, HSBC Holdings Plc put the top estimate on provisions this year at $11 billion. This week, Europe’s largest bank said the cost could now reach $13 billion as the global economy deteriorates. The largest single source of the increase was the UK, which accounted for $1.45 billion of the $3.8 billion of the group’s second-quarter charge.
“Cost cutting is likely in Europe and the US and we would not rule out a breakup option being considered,” said Gary Greenwood, analyst at Shore Capital, as he weighed up the options for HSBC in the face of mounting pandemic costs.

HSBC said that in its worst-case scenario, UK GDP could fall 9.6% this year. It assigned a 10% probability weighting to its view — the highest chance it has given any country for such a dire performance. If British unemployment reaches 7%, Deutsche Bank AG analysts have estimated UK banks might book as much as 40 billion pounds in provisions over two years.
One of the gloomiest reactions to the UK’s prospects came from Spain. Banco Santander SA wrote down the value of its UK subsidiary by 6.1 billion euros ($7.2 billion), wiping out almost all of the value previously ascribed to the business and accounting for more than a third of the provisions taken by the Spanish lender in the last quarter.
Shares in Britain’s consumer-facing banks — HSBC, Barclays, Lloyds and NatWest — have all performed worse than their European peers this year.