HSBC and Barclays, Britain’s biggest banks, reported significant improvements in underlying profits yesterday and gave fresh evidence that the explosion in defaults by business and personal borrowers is beginning to ease.
HSBC said that underlying profits for the third quarter were significantly ahead of last year and that the worst of the crisis was probably over.
Michael Geoghegan, the chief executive, said: “I believe that the biggest jolt has now passed. But it is too early to claim victory, especially while unemployment is still rising in the West.” HSBC revealed that bad debts in its US consumer finance division, which was the problem business at the heart of its troubles at the start of the crisis, fell for the first time since the start of 2006, in tentative evidence that the credit cycle was starting to improve.
Barclays expects impairments to peak either in the final three months of this year or early next year, an improvement on its previous forecast that it would take the first half of 2010 for bad debts to reach their nadir. “We are quite encouraged,” Chris Lucas, finance director of Barclays, said.
The high street bank said that bad debts rose at a significantly slower pace in the third quarter than in the previous quarter. The retail business is recovering more quickly than the commercial unit and the UK is bouncing back at a faster pace than the international operations, Barclays said.
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Barclays restarted dividends, saying that it would distribute an interim cash dividend of 1p a share on December 11. The bank had suspended dividends after the first half of last year.
The positive third-quarter trading statements were greeted differently: HSBC rose to the top of the FTSE 100 leaderboard and Barclays sank to the bottom on disappointment that the dividend was not larger. The payout — at about 12 per cent of post-tax profits — is significantly lower than Barclays’ historic 50 per cent distribution.
Credit Suisse analysts said that the ratio would probably increase. “Our working assumption is 30 to 35 per cent in the medium term,” they said.
Barclays’ statutory pre-tax profit for the first nine months of 2009 was £4.5 billion, a 19 per cent fall on last year. Stripping out acquisition gains and debt buybacks, pre-tax profit was £4.4 billion, an increase of 116 per cent. HSBC does not disclose profit figures in trading statements.
Barclays and HSBC have had to submit detailed reports on their remuneration policies to the Financial Services Authority and are awaiting feedback.