Debt & Bankruptcy Issues in the UK

In spite of an increase in the cost of unpaid loans by consumers trying to escape from their increasing debt loads, projections are that Britain's banks will announce profits of more than £40 billion. The announcement is expected to come with reports soon to be released.

Early projections are that HSBC, Britain's largest bank and the third largest in the world may exceed last year's record of £20.9 billion in profit in spite of problems within its United States division that is causing analysts to consider decreasing as much as 10% off their forecasts.

It is probable that Barclays will make profits of more than £7 billion even though it has been hit hard by the failure of customers to make credit card payments. There is a possibility that the country's third largest bank is looking at the possibility of reducing losses from riskier loans, and recently reported that it may sell its Monument operation, which targets those customers with lower incomes.

Banks reported a combined profit of £20 billion for the first half of 2006, which set the scene for their record tally of profits. The profits were in spite of them absorbing charges in excess of £2.5 billion as they covered the cost of customers who were struggling to repay loans.

Although bad debts will continue to be watched closely, it is believed that the end of "free" banking is very close at hand. With intervention by the competitive authorities into various areas that range from credit cards to payment protection, and most recently, the voluntary banking code itself, early forecasts are that banks will soon charge for even the basic bank services. First Direct, HSBC's phone bank, is beginning to charge for some services and others may follow later according to some sources.

The amount of bad debts is of the greatest concern for investors. Lloyds TSB and Barclays have felt the most pain in these areas, with Lloyds being the country’s largest unsecured lender. In spite of their concerns, reports issued before the reporting season closed are indicative of a trend toward stabilization. Forecasters will be watching for any new information that shows the impact of individual voluntary arrangements (IVA's) on bad debts. Analysts at Merrill Lynch believe the numbers are going to go up but then stabilize, but at the present time, there is no indication of the beginning of that trend.

Banking experts believe that most of the rapid growth in profits will come from outside of the United Kingdom. This will be shown as an increase in pedestrian growth in comparison to an increased expansion in the areas of investment banking, corporate markets, and investment management.

Some banks are even being scrutinized about their strategies concerning acquisitions and disposals. Some analysts question whether Barclays is considering a deal in the United States after it took out a £400 million sponsorship deal. There is also speculation that Standard Chartered may be planning some acquisitions.
All of the banks are facing scrutiny over their operations as more face an increase in bad debts while still increasing profits. Of course, it standards to reason that banks, like any other business, are there to make a profit, and if it means raising costs to customers in order to offset an increase in bad debt write-offs, then that is what they will be. It isn't much different than a department store raising the price of its goods in order to offset the cost of shoplifting incidents, but consumers are just more likely to feel directly affected by an increase in bank fees, especially interest rates and credit card annual fees. After all, consumers are more likely to give up credit cards than shopping in their favourite store, no matter what the cost may be.

It's too early to determine what the increase in bank fees may mean for the consumer, but if you base it on past performance, it's safe to assume that business will decline at first as consumers complain about an increase in fees but will stabilize as they realize there is little they can do but accept the inevitable.