Contrasting news from Barclays and Lloyds today: Barclays, which remains in the private sector, reported a 15% rise in first-quarter pre-tax profits, while Lloyds – which is now part-owned by all of us, thanks to the state bailout – admitted that its losses were continuing to mount. In a brief trading update, Lloyds confessed that it was still taking a serious hit on the real estate portfolio it inherited in the HBOS takeover, and as a result will see corporate bad debts rise by a massive 50% this year. Wonder whose shareholders are going to be happier this morning?
Barclays said this morning that it racked up profits of £1.37bn in the first three months of 2009 – and it’s largely thanks to its decision to shell out for the rump of Lehman Brothers. This provided a ‘transformational change’ to its investment banking arm Barclays Capital, which (coupled with a strong showing from its international division) was more than enough to make up for the expected decline in its UK retail banking revenues, where profits were apparently down ‘significantly’. All of which would seem to vindicate Barclays’ decision to tap Middle Eastern investors for funds, rather than the Government.
By contrast, Lloyds’ own distressed purchase – of failed Scottish bank HBOS – is proving rather less lucrative. Quite the reverse, in fact: Lloyds is expecting a big jump in ‘retail impairment levels’ across the board in 2009 (i.e. people like us defaulting on loans), along with more corporate defaults in the UK and Ireland – but it’s the HBOS real estate portfolio, which is apparently ‘more sensitive to a downturn’, that will be the real money pit. All in all, that means 2009 losses will be half as much again as in 2008. Good job some mug agreed to insure them against all such future losses (that’s right – the taxpayer).
But perhaps we shouldn’t get too excited about Barclays’ Q1 profit. A big chunk of it came from a one-off ‘negative goodwill gain’ from the Lehman deal (i.e. it bought it for a song, given the £32bn of assets it acquired for just $1.5bn). Analysts at Panmure Gordon reckon Barclays’ big exposure to the monocline insurers will end up pushing it into the red this year and next. And it’s not been immune to the rising tide of impairments: bad debts were up 79% to £2.3bn, and it expects more of the same in the coming months, particularly in the UK. If so, its recent share price rally – a five-fold jump in the last two months – might prove to be short-lived...
In today's bulletin:
Barclays bounces but Lloyds still a loser
Unilever profits hit by cheapskate shoppers
Editor's blog: Advertising in a global meerkat
'Patronising' Branson ad leaves Virgin staff steaming
The dangers of office politeness