TAKING THE PULSE: U.K. banks' interim management statements will show that the reputations of their wholesale banking operations have been redeemed in the first quarter of 2009.

Seen as the culprit behind write-downs that slashed profits at nearly every major bank over the past 18 months, wholesale banking is back with a vengeance, minus the dreaded toxic products that got them there in first place.

Wholesale banking revenue, such as interest-rate, currency, money-market and commodities products, is expected to benefit banks active in these, as has been the case at U.S. and European peers.

Bread-and-butter lending to retail and particularly commercial customers is, on the other hand, facing increasing loan losses as unemployment rises, spending falls and companies fail to honor payments obligations.

Nomura analyst Robert Law said that considering wholesale banking's battered image after the write-downs of the past 18 months, investors may understandably be reluctant to value wholesale banking revenue highly.

Even before the credit crisis, they were considered low-quality streams. But Law said that, now, they are being boosted by government funds injected to help stabilize financial markets - and that assistance will be there until conditions improve in the broader economy.

Law noted that he doesn't think this revenue will continue to grow at the pace seen in the first quarter.

NCB Stockbrokers analyst Simon Willis said the worst of write-downs is over, but said some banks still have a lot of securities covered by monoline insurers - so-called because their only business is guaranteeing repayment of bonds and interest if a borrower defaults. Downgrades of monoline insurers suggests their ability to actually payout for defaults is diminishing.

Overall, the wholesale banking upside should benefit Barclays and Standard Chartered PLC (STAN.LN), while Lloyds Banking Group PLC (LYG), RBS and HSBC Holdings PLC (HBC) are vulnerable to rising corporate defaults and losses on unsecured personal lending.

Analysts' calls for more capital at U.K. banks have eased off, for the time being, after more capital hikes at Lloyds, RBS and HSBC this spring. Standard Chartered is seen as strong after its cap hike late last year, while Barclays' capital levels received a stamp of approval from the U.K. Financial Services Authority in March.

The interim management statements are expected to offer more insight than usual, but aren't expected to match other European banks' quarterly reports in terms of detail.

COMPANIES TO WATCH:

   Barclays--- (Thursday, May 7)

MAIN FOCUS: At its annual general meeting Barclays said first quarter profits were "well ahead" of last year. After buying Lehman Brothers' U.S. investment banking activities Barclays' position in wholesale banking has improved, and analysts said the market is likely to accept write-downs as long as revenue covers it and more. As of December 2008. Barclays had a GBP8.4 billion exposure to monoline insurers. The loan book is seen as high-quality, and Barclays has said commercial property lending isn't an issue.

   Royal Bank of Scotland--- (Friday, May 8)

MAIN FOCUS: RBS has embarked on a three- to five-year restructuring plan, which includes halving the size of its global banking and markets operations, and there still is no clarity on how much of its distressed assets will be covered by the government's asset protection scheme. The bank may be well capitalized for now, the analysts say, but there is little visibility. The bank is a big lender to corporations in the U.K., exposing it to rising defaults.

   HSBC--- (Monday, May 11)

MAIN FOCUS: HSBC has stopped writing consumer finance business in the U.S. but it could take years to run down the current loan book, meaning continued impairments will be a drag on earnings. HSBC generates less revenue in wholesale banking so it won't benefit as much from that market's strength. Overall the bank benefits from a strong balance sheet and a solid ratio of loans to deposits.

   Standard Chartered--- (bot yet scheduled)

MAIN FOCUS: Wholesale banking contributes three-quarters of profit, so Standard Chartered should benefit from strong trading seen at Asian wholesale banks, and from improved macro-economic news flow around China. The bank is taking market share as major players withdraw. Standard Chartered is a possible buyer of ABN Amro Asia assets that RBS plans to divest. In consumer banking, there are signs that bad debts will spiral, but from a low level. Standard Chartered's AGM takes place May 7. It hasn't set a date for its interim management statement.

   Lloyds Banking--- (not yet scheduled)

MAIN FOCUS: Lloyds has little wholesale markets revenue. The bank sits on a troubled commercial lending portfolio, mostly from HBOS. The government's asset protection scheme should insulate Lloyds from some losses, especially on the worst loans in HBOS' portfolio, but in a weak U.K. economy, and as unemployment increases, analysts expect "meaningful" deterioration in unsecured personal lending. Lloyds Banking Group's AGM takes place June 5. It hasn't set a date for its interim management statement.

-By Ragnhild Kjetland; Dow Jones Newswires; +44 207 842 9268; ragnhild.kjetland@dowjones.com
Lloyds Banking (LSE:LLOY)
Historical Stock Chart
From Jun 2024 to Jul 2024 Click Here for more Lloyds Banking Charts.
Lloyds Banking (LSE:LLOY)
Historical Stock Chart
From Jul 2023 to Jul 2024 Click Here for more Lloyds Banking Charts.