The UK’s best business bank accounts have reported strong first-half profits, but experts say that improved results have less to do with rising revenues as they do with a reduction in bad debts.
While many of Britain’s bailed-out financial institutions have seen the return of profitability, UK business analysts are saying that there’s not enough evidence to definitively declare a full recovery has been made from the recent global economic crisis.
Instead of a rise in revenues fueling profits, most of the strong half-year numbers being reported by UK banks are due to impairment charges falling. Robert Law, a banking analyst for Nomura, commented that while the industry has indeed turned the corner on recovery efforts, the profitability is due in substantial part to a decline in credit losses. This analysis comes on the heels of the government’s new banking commission recent consideration of breaking up so-called universal banks such as HSBC in order to reduce risk in the financial system.
The commission’s head, Sir John Vickers, will report in September 2011 as to whether their recommendation is to break up larger investment banks. This could affect several financial organisations, such as Barclays, who also has a large investment banking division.
The mandate of the commission is indicative of a possible schism within the UK’s coalition government. While there is little thought that the Conservatives have given serious thought to breaking up large banks, the Liberal Democrats have been vociferous in their demands that the “casino-like” investment banking divisions should be broken off from their retail banking divisions. Stephen Hester, chief executive for RBS, referenced the debate obliquely recently, stating that he had hopes that any subsequent discussion would benefit from the banking commission introducing a more rational voice.
Hester also referenced the so-called “hidden” subsidies that UK banks are currently receiving from taxpayers. Central worldwide banks, such as the BoE, are continuing to infuse additional funds into the economy than normal.