An overview of the UK banking sector feels a bit like surveying a range of extinct volcanoes – undeniably majestic but largely devoid of activity. That is the world-weary narrative that has emerged since the banking crisis forced regulators to clip the sector’s wings. However, while the sector remains maddeningly capable of mistakes and self-inflicted wounds, the basic outlook for the UK’s banks this year will depend on their exposure to various markets, as well as the extent to which aggressive increases in interest rates feed through to margins.
Barclays in a pickle
Various managements at Barclays (BARC) have fought tooth and nail to maintain the bank as a joint retail and investment banking operation. That effort has been impressive on its own terms, but the impression remains that while the investment side can deliver the profits when market conditions allow, it is also undeniably the source of many major hiccups over the years. The latest £450mn profits hit from poor administration of its structured finance unit, which has forced the delay of the share buyback programme, is but one example. It is likely that management will spend a good proportion of this year dealing with internal and regulatory inquiries into the affair.