Big week for banks as market looks to RBS report

The performance of state-backed Royal Bank of Scotland, which reports on Friday, will hinge on whether the lender is hit by a pending settlement with the US Department of Justice over claims it mis-sold risky mortgage-backed securities in the run-up to the financial crisis.

Further provisions or a final settlement included in the results could push the bank to yet another annual loss, which would mark a full decade in the red.

Consensus figures point to a full year attributable loss of £592m, with conduct and litigation costs expected to come in at £2.7bn.

Michael Hewson, chief market analyst at CMC Markets, said: “RBS management have been careful to downplay the prospect that we could see the first annual profit in this particular decade, probably a wise course of action given the bank’s current woes.

“It still hasn’t settled its issues with the US Department of Justice over mortgage-backed securities mis-selling.

“The bank may choose to set aside further provision to help cushion the final settlement into next year’s numbers, with the fine rumoured to be in the region of 10 billion US dollars.”

Piling on the misery for RBS is its controversial restructuring arm GRG, which has come under intense scrutiny in recent weeks and could feature again in the form of further provisions.

The lender, 72 per cent owned by the taxpayer, has already set aside £400m to refund customers who were mistreated by 
GRG.

RBS could also take an impairment charge on the back of Carillion’s collapse.

Chief executive Ross McEwan is also expected to give an update on the group’s restructuring.

Meanwhile, Lloyds Banking Group reports its results on Wednesday when boss Antonio Horta-Osorio will also unveil his three-year strategic plan for the group.

Having steered the group back to private ownership last summer, nearly nine years after being bailed out at the height of the financial crisis, Mr Horta-Osorio is expected to unveil a mammoth investment programme to guide Lloyds through the next era.

Speculation is mounting that he will pledge around £2.6 billion of investment into new technology and infrastructure as Lloyds looks to position itself at the forefront of digital banking.

The figures themselves are set to show another impressive hike in earnings, with analysts at Credit Suisse pencilling in a 37% surge in bottom line pre-tax profits to £5.8 billion from £4.2 billion in 2016.

It follows a run of robust earnings reports from the group.

Lloyds saw pre-tax profits more than double to £1.95 billion in the third quarter and more of the same is expected in the final three months of 2017.

Bonuses for staff and Mr Horta-Osorio are also likely to be revealed alongside the results once again.

Staff at the bank shared out a bonus pool worth £393 million for 2016, while their Portuguese boss saw his total pay package fall to £5.5 million from £8.7 million in 2015 due to a cut in his long-term shares award.

Results day will also see the group face questions over any further hit from collapsed outsourcing giant Carillion, given the sector’s exposure to the group.

It is understood Lloyds already quietly took a provision in its third quarter for Carillion, but there may be more recorded in the full-year figures now that it has gone into liquidation.

Analysts are also bracing for yet more cash to be set aside in the fourth quarter for the payment protection insurance (PPI) scandal that continues to dog the industry.

Lloyds is also in the process of paying victims of fraud at the hands of HBOS Reading staff between 2003 and 2007.

Among the claimants is TV star Noel Edmonds, who is now set to pursue Lloyds through the courts as he seeks up to £60 million in compensation from the banking giant.

Barclays follows with its finals on Thursday as its battles its own legal drama after the Serious Fraud Office (SFO) cranked up the heat.

The SFO has charged Barclays Bank with unlawful financial assistance in connection with a three billion US dollar (£2.2 billion) loan given to the state of Qatar.

The loan relates to a side deal linked to its emergency fundraising during the financial crisis in 2008.

The SFO had already charged Barclays plc, the holding company, as well as four former executives, with conspiracy to commit fraud and unlawful financial assistance.

But the latest move is significant as it potentially puts Barclays Bank’s banking licence under threat.

Away from the SFO case, Barclays is set to post a healthy rise in profits to £4.7 billion, up from £3.2 billion in 2016.

But the focus will be on the investment bank after it disappointed in the third quarter due to lower market volatility.

Like its counterparts, Barclays will also be quizzed over Carillion provisions, with the bank thought to be one of the most exposed to the failed firm through unpaid loans.

The results come after Barclays chief executive Jes Staley recently completed a group-wide restructure, having overseen a mammoth programme to offload non-core businesses in a bid to focus on core UK and US operations.

Barclays has shed 60,000 jobs as part of the shake-up, while also selling off businesses such as Barclays Africa Group.