The headline figures tell you losses have been reduced, and the investment bank has made some money. The full statement also reveals:
The bank’s balance sheet has been cut. Gross assets are down by almost £700 billion to £1522 billion. The bank wishes to make a further reduction, taking off probably around £300 billion more.
Net tangible equity, which was stated as 73.8 pence per share in December 2008, has fallen to 51.3 pence in December 2009.
Operating expenses are up from £13.5 billion to £14.954 billion.
The non core operating loss is up from £11.3 billion to £14.6 billion. The total operating loss is down slightly from £6.9 billion to £6.2 billion. Insurance claims are up. Impairment losses on both the core and non core businesses are up (that’s allowances for bad debts etc).
The new Tier One Capital ratio is up to 11% from 5.9%, so the bank is now financially much stronger thanks to the slimming of the balance sheet and the new capital injected.
The questions to ask include:
1. Why have operating expenses risen so much when the bank is being slimmed? Are the bonus arrangements really appropriate given the overall loss making nature of the bank?
2. What action is being taken to control impairment losses?
3. What action is being taken to improve the insurance divisions results?
4. If the aim is to reduce a bank with a £2.2 trillion balance sheet to a bank with around a £1.2 trillion balance sheet, what impact will that have on the value of the shares?
5. Couldn’t more of the risk reduction and balance sheet slimming be done by selling businesses from within the Group?
The government missed a big opportunity to impose controls on cash bonuses before the Group is profitable overall when it failed to make that a condition of the new capital. Surely the best way to motivate new staff being recruited, or existing staff when renegotiating contracts, is to give them incentives geared to the realisation of profits for taxpayers?