Credit Crunch

Credit Crunch Hits UK Banks

It’s been reported recently that the HSBC banking group has experienced a 28% drop in profits so far in this trading year, which, as one of the country’s top four banks, is an indicator that the credit crunch is biting hard. Their profit on the first half of the year was in the region of £5 billion, which you may think isn’t a bad profit margin but when you consider that is around £4 billion less than this time last year, the decrease is considerable.

HSBC has long been a market leader and one of the stronger financial institutions and even taking into account their drop in profits, they’ve outperformed many of the other UK banks. Their plan to buy a large stake in the Korea Exchange Bank is still undecided however, leaving investors anxious about the move. Asian markets are as likely as any other global market to experience the adverse effects of the credit crunch, so it would be a bold decision if the purchase goes ahead.

Barclays are expected to announce decreases in profits too. They predict they will be in the region of 36%.  Barclays have plans to alleviate these losses somewhat by selling off the part of the organisation dealing with insurances as well as other assets. Likewise, Royal Bank of Scotland is suffering under the impact of the weak home and American economies. They may report losses for this part of the year that are in excess of £1.2 billion.

A slow down in consumer spending is being blamed for the losses as well as a general deterioration in the UK economy. Jobless figures are on the rise and the lack of available credit is affecting how consumers are spending their money.

Today it has been announced that the U.K Goverment will give another £3 Billion to Northern Rock, the countries biggest and most aggressive mortgage lender had to be nationalised in February after its near-collapse five months earlier.

Further details on the latest Northern Rock story can be found here. 

How the UK banks rally in the coming year will depend largely on factors such as the overall global economy and whether or not the Bank of England introduces further interest rate rises.