British banks are lagging behind their European rivals and may never be as profitable as they were prior to the financial crisis, according to analysis from the Financial Times.
The FT’s research shows that British banks are making nowhere near as much as they did pre-crisis, with profits at the UK’s biggest banks 63% lower in 2015 than in 2007, when banking profits peaked.
In contrast, European banks, while still making substantially less than in 2007, are just 34% less profitable than back then.
All of the so-called big five UK banks — HSBC, Barclays, Lloyds, RBS, and Santander — had 2015 profits that were far lower than in 2007. By comparison, pre-tax profits at seven of the 30 biggest banks on the continent were higher last year than they were in 2007.
Of those banks, UBS, Societe Generale, and Nordea, the Swedish lender, have seen some of the biggest gains. Last year UBS made a profit of 5.5 billion Swiss francs (£3.87 billion; $5.63 billion), nearly 10% higher than in 2007 when the bank took a $10 billion hit on sub-prime mortgages.
Societe Generale also saw a big gap between 2007 and 2015 earnings, but much of that increase in profitability was down to the near €5 billion hit it took thanks to the activities of notorious rogue trader Jerome Kerviel.
A big different between British banks and their continental counterparts is that UK lenders have had to pay huge fines for misselling payment protection insurance, a scandal that has cost almost £25 billion so far with much more set aside for further repayments.
However, once the PPI scandal comes to an end, Britain’s banks could see a boost. “An end to PPI provisions, along with conduct fines, would transform the position relative to European banks,” the chief executive of Old Mutual Global Investors told the FT.
While that may be a bright spot, British banks may never recover to pre-crisis levels of profit, according to Andrew Coombs, a banking analyst with Citi. “It’s fair to assume, on an absolute basis, that you won’t get back to pre-crisis earnings,” he said. “Collectively, these are much smaller entities now,” Coombs told the FT.
The UK’s banks all report their results for the first quarter of 2016 in the next week or so, with big falls expected across the board. In its round-up of analysts expectations, Bloomberg shows that profits at Barclays are expected to slip 24.5% and HSBC will decline 42%. RBS and Lloyds are both also expected to see profits drop.
Earlier on Tuesday, Standard Chartered, the emerging market focused, London-listed bank, reported a 64% fall in profits from the same quarter last year.