City chiefs urge caution over banking profits rally

Banking heavyweights today warned the sector's recent run of strong profits should be viewed with extreme caution.

Terry Smith, pugnacious chief executive of dealing house Tullett Prebon, regarded as one of the Square Mile's premier analysts and soothsayers, dismissed bank returns such as those enjoyed by Barclays and HSBC as a "blip", while UBS bosses warned they were wary about the coming months.

They were speaking as Asia-focused Standard Chartered reported far better profits than expected and announced plans to raise £1 billion to capitalise on what it sees as an improving market, a sentiment adding to the bumper figures from Barclays and HSBC yesterday.

But Smith said of the British banks: "They were always going to make a lot of money at this point. They have less competition than they had before and interest rates are low. But rates are going to have to go up and we have not yet seen the end of the loan losses.

"We might have seen the peak of losses on toxic assets but we will now see big losses from prime loans, from customers who would normally be creditworthy. The profits of late are a temporary blip."

Meanwhile, banking giant UBS, whose investment banking arm in Broadgate is one of the City's biggest employers, struck a cautious tone as it saw losses hit Swfr1.4 billion (£781 million) in the last quarter.

"Overall, our outlook remains cautious, consistent with our view that economic recovery will be constrained by low credit creation and the structural weakness in consumers' and governments' balance sheets," warned chief executive Oswald Gruebel.

Those comments chimed with today's awful picture of the British consumer's financial straits painted by Northern Rock, which dashed hopes of a quick return to the private sector after racking up first-half losses of £724.2 million.

There had been speculation the government would want to announce plans to offload the taxpayer-owned bank before a General Election, but chief executive Gary Hoffman said: "There is no process, no discussions and no timetable."

Standard Chartered was far more optimistic, however, thanks to its focus on the Asian region.

Chief executive Peter Sands unveiled plans to raise £1 billion through a share placing and declared that, in his markets at least, the bank was through the worst.

"We're raising this money because we see the recession in Asia as being shorter and shallower than other parts of the world."