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High Street Banks Set To Write Off Further £32bn

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High Street banks are this week forecast to write off a combined £32bn as the recession bites, exacerbating the difficulties facing businesses and households in making loan repayments on time.

The biggest writedown - of up to £11bn - is forecast to come from Lloyds Banking Group, largely as a result of problems inside its HBOS businesses. But the bank, 43% owned by the taxpayer, is expected to reveal that it believes the worst is over, even though bad debts could remain high for some time.

Despite the scale of the losses on loans, many banks may manage to remain in the black, helped by complex accounting rules relating to the way they value their own debt and acquisitions.

Under pressure from the government to help kick-start the ailing economy by increasing lending to homeowners and businesses, the banks will admit that they are meeting targets for mortgages but missing those for small business loans because of a reluctance by companies to borrow.

The interim results are expected to show record performances from the banks' investment banking divisions, with Barclays expected to be the main beneficiary following its takeover of the Wall Street operations of Lehman Brothers. Bonuses are expected to be higher by the end of the year, including for those bankers from Lehman, potentially exacerbating tensions with some staff over changes to the bank's final salary pension scheme.

Royal Bank of Bank of Scotland's impairment charge could reach £7.9bn, according to analysts, although the Edinburgh-based bank, which is 70% owned by the taxpayer, is expected to admit that it has returned to the black for the first time since Sir Fred Goodwin was ousted as chief executive last year.

New chief executive Stephen Hester is likely to set out new five-year targets for the bank in terms of risk-taking and profitability. This is the time he believes it will take to turn RBS around. Hester is likely to admit that a final deal may not be signed before the autumn.

There are unusually wide discrepancies in the forecasts being made by analysts on the banks. Far fewer than usual are sticking their necks out, because of the application of complex accounting rules and contrasting views on the state of the economy.

Barclays kicks off the results season on Monday when it is forecast to report interim profits of £3.5bn, according to a consensus compiled by Reuters, with £2bn of that generated by the Barclays Capital investment banking arm. A dent may be made by a £500m reversal on gains made on its debt last year.

HSBC, Britain's biggest bank, is also reporting on Monday amid fears it could barely break even because of a £2.8bn accounting technicality related to its record-breaking £13.5bn rights issue in the spring. Ian Gordon, banks analyst at Exane BNP Paribas, believes HSBC will also be boosted by its investment banking arm. He is forecasting loan impairments at HSBC to be £8.9bn.

Analysts believe Lloyds could technically report a profit because of the way it will account for the HBOS takeover, but the consensus compiled by Reuters is for a £5.1bn loss - in contrast to the £2.8bn profit in the same period last year.

For Lloyds the worst maybe over as they are nearly at the limit of write offs for the bank were they pick up the bill, pretty soon all the losses will be for the taxpayer to pick up. At that point the profits can only roll in for the bank whilst the taxpayer picks up the tab.

It appears we some spin in the article, businesses claim the banks won't lend and the banks are claiming they will lend but there is no demand.

Next week is going to be interesting.

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The terms of the APF haven't been agreed yet. I bet it's a moving feast with the government being less and less generous and wishing more pain on the shareholders. In return the banks will report terrible results just to show what a mess they are in so they can get the damned thing signed .

<\conjecture off.

Cynic that would never happen, the banks can be trusted. :ph34r:

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