Universal Banks of UK

1. Universal Banks of UK
Argha Ray

2. Profits across Banks are
growing. HSBC is the top
performer. However, RBS still
has to return to sound
financial health.
Profitability and its Drivers
Loan Impairment, PPI, IRHP, Fines etc. are still a drag on profitability. Fortunately such charges
are coming down year on year as bank restructuring picks speed.
Net Interest margin is stable across Banks. The increase for RBS
shows that it is recuperating from earlier delinquencies. Overall
trends in UK Banking are on an upswing.

3. Cost to Income Ratio is more
or less stable across Banks.
Operating expenses are
generally on the decline.
However, RBS is again a cause
of concern.
Cost Management and Regulatory Preparedness
Regulatory environment is fast changing. Current trends suggest that all the banks would be
able to meet targets in the near to long term. Both CET1 and Leverage Ratios are on sound
footings. Risk Weighted Assets are also coming down across banks. However, HSBC needs to do
more on this front. Nevertheless, Regulatory environment poses a significant risk for all banks as
CRD IV guidelines get implemented.

4. Unfortunately for
shareholders ROE is on decline
across banks. But HSBC is still
the top performer on this
count. The Asset Quality for
Banks are looking up.
However, RBS is again a
laggard . It is the only bank
where Loan loss Rate is
increasing significantly.
Health Check
Core Tier 1 Ratio for all banks is increasing. This signifies healthy capital adequacy. Banks have
set ambitious targets on this parameter in the near to long term. Banks have also been able to
keep tabs on Loans to Deposit ratio. This trend suggests responsible lending. However, HSBC has
slipped marginally on this front.

5. Barclays has been able to
maintain balance between
Interest and Non Interest
Income.
Income Segregation
Lloyds needs to increase the
slice for Interest income.
HSBC has not been able to
maintain the balance between
Interest and Non Interest
Income. This signifies
propensity towards risky
business.
RBS has been the best
performer on this count
suggesting matured
restructuring.

6. Barclays’ Statutory Profit rose
on account of reduced losses
in Head Office and Others
division.
Line of Business
Lloyds’ Underlying Profit rose
due to strong performance of
the Commercial Banking
division.
HSBC’s Statutory Profit rose on
account of reduced losses in
Others division. Performance
of rest of the divisions were
stable.
RBS posted underlying losses
due to Loss incurred in its Non
Core function.

7. Barclays performed strongly in
UK and reasonably well in
other geographies. UK
returned the highest income.
Global Diversification
Lloyds is consolidating
operations in UK and exiting
out of other Non UK activities.
HSBC performed well in
Europe and Hong Kong. Rest
of Asia Pacific has been a
dampener.
RBS’ operations are divided
into 5 major geographies.

8. Data Summary
Year 2013 2012 2013 2012 2013 2012 2013 2012
StatutoryProfitBeforeTax(£m) 2868 797 415 -606 13,681 12,771 -8,243 -5,277
UnderlyingProfit(£m) 5167 7599 6,166 2,565 13,088 9,454 -2,303 2,952
NetInterestMargin(BPS) 176 184 111 109 213 232 223 215
IRHPRedress(£m) 650 850 405 600 470.4888 369.863 550 700
PPIRedress(£m) 1350 1600 3,050 3,575 458.3628 1051.45 900 1,110
ImpairmentCharges(£m) 3071 3340 2,741 5,149 3,546 5,140 8,432 5,279
CosttoIncome Ratio 79 84 82.9 77.9 59.6 62.8 64 59
OperatingExpenses(£m) 21,972 21,012 15,322 15,974 23,377 26,550 19,568 17,939
ReturnonEquity 1 1.2 2 3.3 9.2 10.5 4.6 8.9
LoanLossRate(BPS) 64 70 57 102 60 90 200 120
CoreTier1Ratio 13.2 10.8 14 12 13.6 12.3 10.9 10.3
LoanstoDepositRatio 101 110 113 121 74.4 72.9 94 100
InterestIncome (£m) 11,600 11,654 7,338 7,718 21,547 23,300 10,992 11,417
NonInterestIncome (£m) 16,555 17,934 30,647 31,195 25,948 18961.97 8,450 10,668
Barclays Lloyds Hsbc Rbs

9. Assumptions and References
• Data may not be comparable across Banks.
• HSBC reports financial performance in USD. All figures for HSBC has been converted into GBP
based on exchange rates on 31-Dec-2012 and 31-Dec-2013, wherever applicable, using
www.oanda.com.
• Profit or Income by geography for RBS is not available in Annual Report.
• Form 20-F has been used for data collection for Barclays, Lloyds and HSBC.
• Form 20-F is not available for RBS for 2013.
• Data collection for RBS has been done from Annual Report and Financial Supplement
Spreadsheet on its website.
• Performance Benchmarking Report – FY 2012 by KPMG has been referred.
• Industry Report Card by Standard and Poor’s has also been referred.