Banks Set To Announce Record Profits

After all that – sub-prime crisis, credit crunch, law suits for return of charges, and the rest – some of the largest retail banks are set to report increased profits and rising dividends!

The eight biggest banks listed on the London Stock Exchange are set to report profits this week, and it is expected to be a total profit figure of £41.5bn for 2007 – up from the then record of £40.5bn for 2006.

Shares in Barclays and Lloyds were up sharply on Monday morning as investors anticipated a good week to come.

Nevertheless Barclays has seen a 40% fall in its share price in the last 12 months, and experts are expecting a £1.5bn write-off from sub-prime exposure, although that is much less than many of its American and European rivals. Barclays profits are expected to be just above last year’s £7.1bn, and dividend rise of 10% is anticipated.

At Lloyds, a rise in dividends has been on the cards for many months, as it is not as exposed to sub-prime as most other banks. Its dividend is expected to go up by 5%, as profits rise to just shy of £4.4bn.

It is likely that Alliance & Leicester will be worst hit by the credit crunch. It reports 2007 figures on Wednesday, and has already warned that write-downs of £185m will knock profits for 2007. Analysts expect a drop from £598m to around £400m.

Meanwhile, the banks are preparing to take on Northern Rock under its new public ownership. They will be prepared to raise their voices in complaint if they believe the new management under Ron Sandler uses its Government backing for unfair competition against them.

Nationalisation still has to be approved by the European Commission, who will monitor the Government’s ownership of Northern Rock closely to make sure it does not amount to illegal state aid.

Bank investors are also relieved that Northern Rock is actually more likely to be less competitive under state ownership than it might have been under Virgin.