The escape committees at Barclays and HSBC can breathe a sigh of relief. They got away, while Royal Bank of Scotland and Lloyds Banking Group have become so entangled in bad loans they remain in the UK government sanatorium. Barclays' half-year profits rose 10 per cent to almost £3bn; although HSBC's profits halved, it still made $5bn. Both banks relied heavily on their investment bank divisions to do the spadework, compensating for higher bad debt charges elsewhere.
These are rising fast. In the first half, Barclays' bad debts leapt by almost 90 per cent to £4.6bn, while HSBC's surged almost 40 per cent to $13.9bn. Both banks have already taken preventative action. Barclays raised capital from Gulf investors last year to bolster its equity. This year it hawked the family silver: the sale of Barclays Global Investors will lift its core tier one capital ratio to 8.8 per cent. HSBC, gored by its US consumer finance business, meanwhile rose $17.8bn in an elephantine rights issue in April. Its capital ratio is now the same level as Barclays'.
For now, though, capital generation is the preserve of their investment bankers. Like their US counterparts, both banks have reaped the benefits of less competition and solid customer flows in debt and currency trading. Barclays Capital, which is integrating Lehman Brothers' US operations, boosted its bond issuance business and almost doubled profit to £1.05bn. HSBC, for its part, had a record half. Its investment bank made $6.3bn, more than it did in the whole of 2007.