Banks’ financial results are like buses – you can spend long months waiting for one, and then three turn up at once. On Tuesday, Santander showed that retail banking is the Routemaster of the financial sector, never quite going out of style. Trailing it all the way and only occasionally stopping to drop off the odd pensioner was Barclays, which came out with its first quarter results yesterday. RBS followed suit today.
RBS and Barclays have a lot in common. Both are in the middle of a tectonic shift away from risky investment banking towards retail. Both are seeing the fruits of cost-cutting initiatives on their bottom line, only to have them persistently pinched by regulators on two continents.
Shareholders (including the Government of course in RBS’ case) and banking nerds alike may be interested in knowing which is doing better.
On the surface, Barclays appears to have the healthier bottom line, although that’s not saying much. Profits were down 26% to £1.3bn for the three months to March 31. RBS made a £446m loss, having made a £1.2bn profit last year.
However, when adjusted for ‘one-off costs’ (of which more later), the position is reversed. Operating profits at RBS were up 16% compared to a 9% rise at Barclays. The reason RBS outperformed Barclays in this measure is largely that its cost-cutting measures have been further-reaching. Operating expenses at Barclays were down 7% compared to 15% at RBS.
Of course, ‘I would have made more money had I not had to pay that huge bill’ doesn’t really cut it with shareholders. Both banks were hobbled yet again by provisions for regulatory fines, compensation and litigation costs.
Barclays set aside another £800m, largely to cover any fine it may receive from US and UK regulators over alleged forex rigging, and an additional £150m to compensate for PPI mis-selling, the scandal that just refuses to die. At RBS, the figures were very similar - £856m in ‘litigation and conduct charges’, £100m for PPI.
It would be wrong to paint an entirely gloomy picture in the City. Both banks are digging deep in the short term to pay for those longer term cost reductions. RBS paid £453m last quarter to help it become ‘a simpler, stronger business’, while Barclays’ ‘Transform’ programme set it back £120m.
Presumably, once these costs are paid and the era of ‘legacy’ fines is over, both will be in a far stronger position. For now, the news is largely downbeat. Barclays shares have dropped 2.3% to 254p since yesterday morning. RBS has fallen 4.1% to 335p this morning. That's perhaps not a fair fight, given RBS is 80% taxpayer-owned, but on points it goes to Barclays.
In other financial news, former Federal Reserve chair and all-round QE enthusiast Ben Bernanke has found himself a nice advisory role at Pimco, the world’s largest bond fund. Retiring from such a high profile job in macroeconomics can’t be easy, but as Pimco has a staggering $1.6tn (£1.1tn) of assets under management, a large proportion of which is presumably US government bonds sold under its QE programme, it’s perhaps a natural choice.
Pimco will certainly be pleased to have a little star power, after losing former CEO Mohamed El-Erian and co-founder Bill 'Bond King' Gross last year.
Bernanke works full-time at the Brookings Institute with MT editor-at-large Richard Reeves, and recently announced another advisory role at Citadel, a hedge fund. Got to do something to keep the mind occupied, eh?