The fortunes of Britain’s biggest lenders may well be reflected by a mix of celebratory champagne and commiserative pints by next week, as bankers with an eye on their bonus assess the fallout from a patchy earnings season.
Bosses of the UK largest lenders are due to kick off the annual reporting period from Thursday, but their financial performance – and any resulting bonuses – will be overshadowed by corporate shake-ups and job losses.
Of the big four bank bosses, NatWest’s Paul Thwaite has one of the easiest jobs ahead. While he is expected to report a 1.8% drop in annual pre-tax profits to £6.1bn on Friday, he will be able to hail the fact that the government’s stake is months away from disappearing.
The Treasury spent nearly £46bn to bail out NatWest, then known as Royal Bank of Scotland, at the height of the financial crisis in 2008, leaving taxpayers owning about 84% of the lender. That stake has since dwindled to less than 8%, despite a campaign to sell shares to the public, fronted by Sir Trevor McDonald, having been ditched. Instead, Thwaite now expects to return the bank to private hands by June.
NatWest bosses are also reportedly considering boosting the bonus pool by up to 25% to £450m, giving its bankers much to celebrate.
There will be far less cheer at HSBC. Bankers at the high street rival are steeling themselves for a swathe of job cuts, with new chief executive Georges Elhedery due to reveal the details of a major restructuring plan, alongside its results on 19 February.
First announced in October, the overhaul involves dividing the bank’s operations into eastern and western markets in a move that many believe could help the bank navigate competing political pressures from Washington and Beijing.
And while Elhedery had already said he would cut jobs and let some of his most senior staff go, he shocked bankers last month by announcing plans to shut parts of its investment banking operations – including those handling mergers and acquisitions, and equity fundraising for listed companies – in the UK, US and Europe.
It is unclear how many of its nearly 214,000 global staff, including its 40,000 UK workers, will be axed as part of those plans, and bankers fear their bonuses will also suffer.
“Morale is horrible,” one UK-based HSBC investment banker told the Observer. “Everyone is panicking, everyone has sent out CVs.” And for those yet to jump ship, patience is waning. “What’s the motivation for me to work when I’m not going to be rewarded?” the staffer said.
Fears over a combined £44bn compensation bill over the motor finance commission scandal could also cast a cloud over full-year earnings for UK banks, including Lloyds and Barclays.
Lenders have been grappling with the fallout of a shock court judgment in October that vastly expanded a Financial Conduct Authority investigation into motor finance commissions and sent compensation estimates soaring. The landmark ruling determined that paying a “secret” commission to car dealers who had arranged the loans without disclosing the sum and terms of that commission to borrowers was unlawful.
Lloyds is expected to suffer a 15% drop in full-year profits to £6.4bn, according to average analyst estimates. But predicting future profits comes with an asterisk, given uncertainty over the outcome of a supreme court case in April where car finance companies hope to overturn the motor finance ruling.
While Lloyds is not a party to the court case, it has the biggest exposure to car loans out of the UK’s high street banks. RBC Capital estimates that it could be on the hook for up to £4.6bn. Chief executive of Lloyds Charlie Nunn may struggle to drum up excitement over his progress towards his five-year strategic plan, which has involved branch closures and a major push into digital banking.
There is one bright spot for UK bankers, though.
Barclays is expected to post a 23% jump in annual profits to £8bn on Thursday, according to Shore Capital, leaving staff in line for large payouts. Its dealmakers are also set fair, as bankers step into the “go mode” some claim Donald Trump’s return to the White House has injected into Wall Street, where the UK bank has offices.
Barclays bulked up its half-year bonus pool for the first time in three years in August, signalling that there could be larger payouts for bankers who can now earn 10 times their salary since the EU bonus cap was scrapped. Only the motor finance payouts, estimated to cost it £442m by RBC, may provide a blemish for the bank, which may be the standout performer in a rocky reporting season.
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