Banks and building societies operating in the UK suffered an aggregate net loss after tax and provisions of £5.8 billion in the first three quarters of 2008, according to data obtained from the Bank of England under a freedom of information request. This compares with a net profit for banks alone of £29.0 billion in all of 2007. (The statistics include building societies from the start of 2008.)
The loss over Q1-Q3 2008 was due to a negative contribution of £18.9 billion from dealing activities – probably reflecting write-downs on securitised assets – and provisions of £12.8 billion for bad and doubtful debts. Pre-tax profits excluding dealing and provisions were £26.6 billion versus £40.5 billion for banks alone in all of 2007 – see chart.
Despite the £5.8 billion loss, banks and building societies paid out dividends of £17.9 billion over Q1-Q3 2008. Consequently, their stock of retained earnings fell by £23.6 billion – more than cumulative retentions by banks alone over the previous three years.
Even allowing for a further retained earnings loss in the fourth quarter, the erosion of internal capital last year will have been comfortably exceeded by new capital-raising of more than £70 billion, with the government contributing £37 billion. In other words, despite staggering write-downs and provisions, banks’ and building societies’ aggregate capital ended 2008 significantly higher than a year before.
