It's time we benefitted from massive bank profits!

The banks are back in the black, but will we see any benefit?

Over the last couple of days, the news has been dominated by some of Britain’s biggest banks reporting eye-catching profits.

Lloyds Banking Group - 41% owned by the taxpayer remember - has confirmed pre-tax profits of £1.6bn for the first half of the year, double the expected figure.  

HSBC reported a 120% jump in pre-tax profits up to £7bn, while even Northern Rock’s so called ‘Bad Bank’ arm finished the first half of the year £350m in the black, compared to a £724m loss in the same period last year.

Further results from other banking giants, including Royal Bank of Scotland, are due in the coming days.

Given much of the banking sector owes its current resurgence (and in some cases, their very existence) to the billions of pounds of taxpayers’ cash that was pumped into their balance sheets, it’s perhaps not unreasonable to expect some sort of return on our money now things are looking healthier.

But will we benefit from a return to profit for our banks?

Shareholders

The one group most likely to benefit from all this are of course the shareholders in the relevant banks. Up until a few months ago, I would have been one of them, having taken a daft stab on some HBoS shares shortly before the shotgun marriage with Lloyds.

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Currently Lloyds is banned from making any dividend payments as a result of the Government’s stake, which will no doubt further irk the Lloyds shareholders still upset by the tanking the share price took following the HBoS deal. However, the announcement of the results has led to the share price jumping by 97p a share at the time of writing, to a level not seen since last September.

Don't be surprised to see a similar result when Royal Bank of Scotland unveil their profits for the year so far.

But it's not just shareholders in the banks who may benefit, at least initially. The HSBC results (coupled with strong results from BNP Paribas) helped towards an initial burst in the value of the London Stock Exchange as a whole. However, this has since stalled.

Taxpayers

Of course, while most of us may not boast share certificates in the UK’s biggest banks, as taxpayers we still retain a shareholding interest in many of them.

And according to some reports, we are looking at a profit of at least £7.4bn from our stakes in the bailed-out banks, though that includes using the share prices of other banks as a guideline for the value of Northern Rock, something of a risky assumption in my view.

What’s more, it’s not like we will see any of that money for some time to come. The Government is on record as saying that it’s highly unlikely that it will sell the huge stakes we all own in Northern Rock, Lloyds and Royal Bank of Scotland within the next 18 months, until an official commission concludes its investigation into whether it would be wise to break up the banks.

Any talk of taxpayer profit really is just that – talk.

Time to get lending

However, there is at least one area that we should all see some benefit from as a result of these profits – increased lending from the banks.

Lloyds may have posted massive profits, but it’s important to note that its net lending over the first half of the year actually decreased. The bank defends this, arguing that many borrowers instead preferred to pay off existing debts, and that demand was low.  

That’s all well and good, but part of the reason there hasn’t been a massive rush to borrow from Lloyds is that most of their rates are rubbish.

OK, they have the Airmiles Duo credit cards, which are pretty decent, but a balance transfer card that offers 12 months free from interest is mediocre at best.

The situation with mortgages is just as bad. Let’s take their two-year fixed rate mortgage, available to borrowers with a 25% deposit. Lloyds currently charges a rate of 4.09%, with a fee of £895. That’s awful considering the market-leader, Yorkshire Building Society, offers a rate of just 2.89% and a fee of £995.

And it’s not like the deals on offer from the other members of the group are much better. There is a lot of room for improvement here.

Here comes Dave

The combination of a poor range of products and pitiful levels of lending to small businesses is one employed by many banks, whether part-owned by you and me or completely independent. And it’s a real problem, as without this funding, it’s difficult to get the economy as a whole moving again.

While there are certain requirements on lending levels for the State-owned banks, these are clearly not enough, and the Government is looking to take some serious action. The Prime Minister will meet with Mervyn King, the Governor of the Bank of England, this week to look at ways to force banks to lend more.

Let’s hope that their little chat does the trick. It’s ridiculous that banks are posting massive profits, dishing out huge bonuses and yet the general public, who financially support them get, absolutely nothing in return.

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