UK banks are likely to have to make further costs cuts

Posted by | July 26, 2016 | News

As U.K. banks post second-quarter results, investors will be watching for yet another deepening of cost cuts – courtesy of Brexit.

Bloomberg News reports that Lloyds Banking Group was already mulling deeper job cuts on top of the 9,000 previously announced to combat record-low interest rates, people familiar with the plans said earlier this year. The five major U.K. banks are all in the midst of cost-cutting programs, collectively trying to trim about $15bn from their expenses. Earnings figures themselves will be a sideshow, even with some positive news from bond trading and oil’s rebound.

While most European banks have been cutting assets and staff to boost profitability and meet capital requirements, British lenders had been able to rely on one of the strongest domestic markets in the region before the nation voted to leave the European Union on June 23. Post-Brexit, the Bank of England is expected to cut interest rates to shore up the economy, and that’s set to crimp lending margins at firms like Lloyds, Barclays and Royal Bank of Scotland just as demand for loans wobbles.

“I don’t think any bank’s current cost-cutting plans are sufficient to generate normalized returns in the time periods they’re targeting,” said Ian Gordon, an analyst at Investec in London. “Will branch closures continue? Yes. Might they accelerate? Yes. For capital markets and investment banks, will we see cost takeout? Yes. Will we see further streamlining? Yes.”

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