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It's going to be a tough year.

Brave souls wanted to work for British banks in 2023

Would you work for a British bank now? When you could be working for a nice cozy American one instead?

Far be it for us to advocate employment on the grounds of an employer's nationality, but as a report this week from banking analyst Edward Firth and team at KBW makes clear, British-based banks have a few things going on right now. 

We already made this point with an article last week pointing out that Barclays' US bankers and traders might have their bonuses crimped by issues in their home market as the British consumers and homeowners in receipt of loans struggle to repay them. However, Firth makes the same point with far greater erudition. And he says Barclays is by no means the most exposed. 

The charts below make Firth's case. Given that his report was issued on Wednesday (the 19th) and that things in the UK have become more chaotic on Thursday (20th), things could presumably turn out worse, or better, depending on what's to come. 

Firth makes the point that European banking stocks have been underperforming European banking stocks (STOXX Europe 600) since August....

Things are likely to deteriorate before they improve. Next year Firth et al are expecting British banks’ return on tangible equity (RoTE) to plummet. Conditions might become more clement in 2024, but the analysts think they’ll only be really better in 2025 and thereafter.

Why is this? The KBW team note that British banks are heavily consumed to British consumers and that British consumers may have issues paying their debts. They have a total £1.6trn of mortgage debt outstanding and a further £204bn of unsecured loans from UK banks, which KBW says includes c.£62bn of credit card borrowing and c£143bn of personal loans.

The good news is that impairments aren’t expected to be massive. At 0.92 of loans, Firth's team think they'll be well below the peak of 2008 (2.25%) and below the BofE stress test (1.81%).

Nonetheless, rising impairments will still cut returns and that probably doesn't bode well for anyone at a British bank who's hoping for a big bonus in the next few years.

At least that's the gloomy perspective for British bank employees thinking mostly about their own earning potential. A more cheering alternative might be that as consumer and corporate loans sour, organizations with trading and investment banking arms will lean on them more heavily than ever and will need to reward staff accordingly. Firth and his team are predicting that 2023 sales and trading revenues at Barclays, for example, will meet the average for 2019-2022 in 2023, only to decline in 2024 as volatility ebbs. Conversely, they think that investment banking (M&A, ECM and DCM) revenues at British banks will be weak next year and recover only in 2024.  

It might be supposed, therefore that Barclays will therefore need to keep its traders happy next year and its bankers happy the year after that. At least that will be the hope. 

Photo by Gioele Fazzeri on Unsplash

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AUTHORSarah Butcher Global Editor
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