Shares in Barclays and Royal Bank of Scotland got off to a bad start this week, falling 2% on the back of Deutsche Bank’s unexpected loss announcement on Sunday night.
The common line was that there is a clear read-across from Germany’s biggest bank to two of the UK’s bigger ones — particularly when it comes to falling profits from bond trading.
The final quarter of last year was tough for bonds what with the “will they won’t they?” ending of quantitative easing. Barclays and, to a lesser extent, RBS will certainly see damage to the top line of investment banking. But investors may be pleasantly surprised at the extent to which costs have fallen in those investment bank divisions. For a start, lower profitability will mean lower bonuses. At the same time, Barclays chief Antony Jenkins has been driving costs down while RBS’s Ross McEwan has continued his predecessor’s drive to shrink investment banking activities.
Both banks have started to see the benefits of the revival of the UK economy on their consumer and commercial businesses.
Barclays kicks off the reporting season on February 11 and RBS ends it on February 27. For once, it might just be worth betting on good news rather than bad from our banks.
