British Clearing Banks Report Better FX Gains Despite Generally Bleak Overall 1991 Results

BANKS

Despite generally disastrous results overall, the British clearing banks, Barclays Bank, National Westminster Bank and Lloyds Bank, all managed to turn in stellar performances in foreign exchange in 1991.

Barclays, whose pretax profit dropped 30 percent from £760 million in 1990 to £533 million in 1991 due mostly to bad debts, raised its foreign exchange trading income by some 37 percent from £159 million in 1990 to £218 last year, the best performance among the three. (Like all the British banks, Barclays reports its forex gains as a gross rather than a net figure.) The press statement says that treasury, forex and other trading operations "achieved their best-ever result," and attribute the gains to favorable market conditions.

U.K. treasury director Stephen Mazloumian says the bank is "quite pleased" with the result but he can point to nothing specific that produced it. Barclay's foreign exchange group performed well across the board, he says. Good corporate flows and the market's volatility contributed to the improvement.

The volatility, Mazloumian says, was of the "right type" that permitted the bank to hedge its exposure properly and be in a reasonable trading position. The real problem, he says, has been shrinking liquidity. For 1992, Mazloumian expects no great changes in Barclay's strategy after the reorganization along product lines and the combination of treasury and capital markets the bank underwent in 1991.

Nat West

National Westminster had an even worse year than Barclays overall: pretax profit fell 78 percent from £504 million in 1990 to £110 million in 1991. Actual operating profit, says the press statement, was way up--offset by record bad debts. But forex income rose 4 percent from £130 million in 1990 to £136 million in 1991.

This figure, the report indicates, improves to £145 million, an 11 percent rise, if you add back £9 million in translation losses on "structural funding of certain subsidiaries." Results for the entire group treasury and capital markets jumped by 84 percent, reflecting the success of NatWest's moves to combine the two functions last year, according to NatWest's U.K. treasury director, Paul Winchester. The bank also announced last month a new move to put all corporate and institutional banking into one group with treasury and capital markets, to be called NatWest Markets.

Winchester comments that the improvement in forex results in London, at least, "have been more than £6 million." New York and the Far East have also done quite well, he adds. "The result is due to the buildup in our activity based on our strategy both in professional trading and our focus on doing forex business with our major corporate customers in the U.K. and Europe," says Winchester.

Customer business increased significantly during the year, he says. The bank also benefited from volatile interest rate movements, allowing it to profit from its position taking capabilities, particularly in the forward market, where it did especially well, Winchester says.

Lloyds

Of the three banks, Lloyds is the only one to raise overall results in 1991. Pretax profits increased by 9 percent from £591 million to £645 million, beating the much larger Barclays and NatWest. Although Lloyds also suffered from bad debt problems, it has cut costs in the past year, aiding its profitability. Forex trading income rose 16 percent from £62 million to £72 million--reflecting the much smaller size of Lloyd's dealing operation. The press statement comments only that there was "good growth" in forex trading. Treasury director Brian Milne did not return calls by press time.

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