As Lloyds posts its highest profit in a decade, have British banks got over the financial crisis?

By: and

Add as a preferred source on Google

Fahad Kamal, senior market strategist at Kleinwort Hambros, says Yes.

In the latest stress tests conducted by the European Banking Authority, only two of the 51 banks tested – neither British – would fall below the minimum capital level required in an “adverse” scenario.

Admittedly, some UK banks still have a hangover from the pre-crisis party, with RBS being the most fragile. But even it would probably survive all but the most horror-filled downturn in which UK house prices fell by one-third, unemployment doubled and global GDP growth fell off a cliff. Simply, the difference between balance sheet strength then and now is night and day.

Nonetheless, the question posed may be missing the woods for the trees. While British banks are no longer facing an existential threat resulting from the last crisis, it’s the next crisis that we should be worrying about. When it occurs, as it inevitably will, balance sheets will be savaged anew by things everyone saw, but no one smelt. Then – as in 1720 (South Sea Bubble), 1929 (Great Depression), 1973 (Oil) or 2008 (Subprime) – only the strongest will survive.

Laith Khalaf, senior analyst at Hargreaves Lansdown, says No.

Business is pretty much back to normal at Lloyds, which is now happily posting profits and paying dividends, and is almost entirely back in private hands – the government stake is now less than 5 per cent.

However, Lloyds is leading the charge in its recovery since the financial crisis. Bringing up the rear, RBS is about to post its ninth consecutive year of losses, and still finds itself facing litigation in the US for misconduct – not to mention the ongoing saga of its divestment of Williams & Glyn. The bank still bears the scars of the financial crisis, not least because it’s still three-quarters owned by the government, and the share price needs to double from here for the taxpayer to break even.

HSBC and Barclays are somewhere in the middle. Lots of restructuring and cost cutting has been achieved, but there is still some way to go. The point at which we’ll know that banks have finally crawled out from the long shadow of the financial crisis is when RBS pays a dividend – something it hasn’t done since 2008.