UK Banks Brace For $22 Billion Loan Losses As Outlook Darkens

Coronavirus fears, Brexit and low interest rates caused British banks to bake tougher ‘worst-case’ scenarios into their risk models

Britain’s banks took a gloomier view than almost all their European peers in their second quarter earnings, as coronavirus fears, Brexit and low interest rates caused them to bake tougher ‘worst-case’ scenarios into their risk models.

Investors had expected a torrid set of halfyear results, but Barclays, Standard Chartered, Lloyds, NatWest Group and HSBC fell short of these low expectations.

Provisions for potential loan losses across the five banks topped $22 billion, blowing past analyst forecasts and increasing selling pressure on shares already hammered by the pandemic this year.

By contrast, France’s BNP Paribas and Credit Suisse beat analyst forecasts, benefiting from bumper trading volumes as well as relatively modest provisions.

HSBC and Lloyds were punished for poor results, with shares in both banks plumbing their lowest levels in 11 and 8 years respectively.

All five UK banks have under-performed, falling by between 42% and 55% this year compared to a 36% fall in the European banking index.

“The UK banks are facing a more significant economic drop than most Europeans as the UK has faced a bigger shock from the COVID-19 pandemic, and that has fed through into provision levels,” said Patrick Hunt, partner at consultancy Oliver Wyman.