British banks tipped to write off $80b

Britain's high street banks are this week forecast to write off a combined £32 billion ($81 billion) as the recession bites, exacerbating the difficulties facing businesses and households in making loan repayments on time.

The biggest writedown - of up to £11 billion - is forecast to come from Lloyds Banking Group, largely as a result of problems inside its HBOS businesses. But the bank, 43 per cent owned by the British taxpayer, is expected to reveal that it believes the worst is over, although bad debts could remain high for some time.

Despite the scale of the losses on loans, many banks may manage to remain in the black, helped by complex accounting rules relating to the way they value their own debt and acquisitions.

Under pressure from the Government to help kick-start the ailing economy by increasing lending to homeowners and businesses, the banks will admit that they are meeting targets for mortgages but missing those for small business loans because of a reluctance by companies to borrow.

The interim results are expected to show record performances from the banks' investment banking divisions, with Barclays expected to be the main beneficiary after its takeover of the Wall St operations of Lehman Brothers.

Bonuses are expected to be higher by the end of the year, including for those bankers from Lehman, potentially exacerbating tensions with some staff over changes to the bank's final salary pension scheme.

Royal Bank of Scotland's impairment charge could reach £7.9 billion, according to analysts, although the Edinburgh-based bank, which is 70 per cent owned by the taxpayer, is expected to admit that it has returned to the black for the first time since Sir Fred Goodwin was ousted as chief executive last year.

New chief executive Stephen Hester is likely to set five-year targets for the bank in terms of risk-taking and profitability. This is the time he believes it will take to turn RBS around. Hester is likely to admit that a final deal may not be signed for another few months.

There are unusually wide discrepancies in the forecasts being made by analysts on the banks. Far fewer than usual are sticking their necks out, because of the application of complex accounting rules and contrasting views on the state of the economy.

Barclays kicked off the results season overnight when it was forecast to report interim profits of £3.5 billion, according to a consensus compiled by Reuters, with £2 billion of that generated by the Barclays Capital investment banking arm. A dent may be made by a £500 million reversal on gains made on its debt last year.

HSBC, Britain's biggest bank, was also reporting overnight amid fears it could barely break even because of a £2.8 billion accounting technicality related to its record-breaking £13.5 billion rights issue in the spring.

Ian Gordon, banks analyst at Exane BNP Paribas, believes HSBC will also be boosted by its investment banking arm. He was forecasting loan impairments at HSBC to be £8.9 billion.

Analysts believe Lloyds could technically report a profit because of the way it will account for the HBOS takeover, but the consensus compiled by Reuters is for a £5.1 billion loss - in contrast to the £2.8 billion profit in the same period last year.

HIGH STREET HIT

Expected write-offs from UK banks include:

Lloyds: £11b
Royal Bank of Scotland: £7.9b
HSBC: £8.9bby Jill Treanor in London

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