微信斗牛要从哪里拉人

Skip to content
Analysis

Why big UK and European banks are struggling to grow returns

Sky's Ian King says the UK bank reporting season has thrown up some common challenges for the country's biggest lenders.

The financial offices of banks, including Barclays, Citi, HSBC, in the financial district of Canary Wharf, are pictured from Greenwich in London on October 29, 2017. / AFP PHOTO / Tolga AKMEN (Photo credit should read TOLGA AKMEN/AFP/Getty Images)
Image: Canary Wharf is home to both HSBC and Barclays
Why you can trust Sky News

the big four lenders that dominate the uk's banking market - barclays, rbs/natwest, hsbc and lloyds - have completed reporting their results for the year and, with those results, there were some common themes.

perhaps the most important theme was this.

微信斗牛要从哪里拉人lloyds, barclays and rbs/natwest all lowered their targets for "return on tangible equity", or rote, for the year.

Barclays bank logo
Image: Barclays has admitted it will be difficult to hit its 10% RoTE target

rote is a very important measure of profitability for a bank and its shareholders.

simply put, it is a measure of how effective a bank is at generating profits from its equity, the money invested by its shareholders. a rote of 10% is regarded as reasonable.

so, when banks cut that target, it suggests they regard their prospects as having deteriorated.

To take them in turn: Barclays announced on Thursday last week that it achieved a RoTE of 9% for 2019 but admitted that it would be "challenging" to hit the target of greater than 10% it had hoped to achieve in 2020.

More from Business

The following day, Alison Rose, the new chief executive of RBS - soon to change its name to NatWest - admitted that, while the bank achieved a RoTE of 9.4% in 2019, she was abandoning the target of 12% set by her predecessor, Ross McEwan.

微信斗牛要从哪里拉人instead, she said, the bank was targeting a rote of 9% to 11% "in the medium to long term".

preview image
Bank boss denies crisis link to NatWest rebrand

On Thursday, Lloyds Banking Group reported a RoTE for 2019 of 7.8% but insisted that, had it not been for another thumping set of provisions for past mis-selling of Payment Protection Insurance, the underlying figure was closer to 14.8%.

but it too reduced its expectations for this year, saying it was targeting a rote of 12% to 13%, down from the previous guidance of 14% to 15%.

As for the other member of the big four, HSBC, it had already abandoned its target for RoTE of 11% for 2020 as long ago as last November.

A sign of international banking and financial services holding company HSBC is seen under black clounds on the top of a building on March 1, 2019 in Geneva
Image: HSBC has also downgraded RoTE expectations

微信斗牛要从哪里拉人it achieved just 8.4% in 2019 and noel quinn, its interim chief executive, said on tuesday that he was hoping for between 10% and 12% in 2022.

the downgrades from rbs/natwest and lloyds banking group are especially disappointing.

banks, when all is said and done, are effectively a geared play on the economies in which they operate. in the case of both of these lenders, the vast majority of their profits are made in the uk.

微信斗牛要从哪里拉人on the face of it, that would imply that the banks do not expect much in the way of economic growth this year in their home market.

微信斗牛要从哪里拉人but there is a bit more to it than that. right across europe, not just the uk, major banks have been cutting their targets for rote this year.

bnp paribas, france's biggest lender, last week cut its target to 10% for this year, down from 10.5% previously. another leading french bank, societe generale said it was unlikely to hit the 9% to 10% rote that it had been targeting for this year.

and ubs, switzerland's biggest bank, has just lowered its target from 15% to between 12% and 15%. its local rival, credit suisse, had already cut its 2020 target before christmas from between 11% and 12% to just 10%.

among the few major european lenders not to have announced cuts in their targets of late have been deutsche bank of germany and unicredit of italy and, arguably, that was because they were already targeting very low returns in any case.

A Unicredit sign at the bank's headquarters in Milan
Image: Milan-based Unicredit is planning hundreds of branch closures this year

so this is by no means a british problem. it is a widespread european issue and reflects the damage that ultra-low interest rates - or indeed negative interest rates in switzerland and the eurozone - do to the profits of banks.

微信斗牛要从哪里拉人they compress the 'net interest margin' - the spread between what banks charge borrowers and pay savers - and that, in turn, crushes profits. margins have also been depressed in particular product lines, notably mortgage lending, where competition is ferocious.

wedded to that is the increasing disruption to traditional banking.

the world is increasingly cashless and that, combined with the rise of online and digital banking, means banks have no need for the large branch networks of old. that is why around a third of bank branches have closed in the uk during the last five years, including 1,052 at rbs and natwest, 481 at barclays and 442 at hsbc.

微信斗牛要从哪里拉人again, though, this is not just a british phenomenon. germany saw a third of its bank branches close between 2007 and 2018 and its major lenders are still bringing down the shutters in various locations.

微信斗牛要从哪里拉人commerzbank, germany's second-biggest lender, has just unveiled plans for some 200 branches to close.

the same is happening elsewhere in europe: unicredit, italy's biggest lender, recently announced plans to close 500 branches in 2020. and there is undoubtedly more to come: france has a bigger network of bank branches than most other european economies and is yet to see the scale of closures witnessed in the uk and germany. it may yet.

微信斗牛要从哪里拉人such measures also have the benefit of reducing costs over the longer term - the cost-cutting made more imperative by rising expenses elsewhere, such as the need to prevent ageing - and expensive - legacy it systems from falling over, the need to launch new digital products and the need to pay increased regulatory overheads.

in the uk, this has included the cost of meeting the 'ring-fencing' rules, separating core retail banking operations from investment banking operations, introduced at the beginning of 2019 following a recommendation from the independent commission on banking, chaired by sir john vickers in the wake of the financial crisis.

another post-crisis measure, the banking levy, also eats into bank profits. for example, it clipped £226m from the profits of barclays, £43m from those of lloyds and a socking $1bn from those of hsbc.

overlaid on that are a number of individual situations that make the battle to raise profits at individual banks more difficult: returns in the investment banking divisions at both barclays and hsbc lag those elsewhere in those particular banks, rbs is having to shrink its investment banking division, natwest markets, while lloyds, due to its heavy exposure to the uk economy, has faced bigger ppi pay-outs than its rivals.

so this is a hard time to be running a uk bank. and an equally tough time to be a shareholder in one.

扑克有哪些打法 一台打鱼机判刑吗 体彩排列五012走势图表 今晚上排列五开奖号码 大乐透7十4复式多少一投注