The UK's big banks are forecast to post losses in their high street units in the second half of the year as loans increasingly turn sour, research suggested today.

Retail banking is still just profitable at lower levels, but with rising impairments it seems probable that it will fall into loss making in the second half of this year, the report from accountants KPMG said.

HSBC, Lloyds Banking Group, Royal Bank of Scotland and Barclays all reported profits in their retail divisions for the first six months of the year - - but these were squeezed by rising levels of bad debts.

UCD economist Colm McCarthy made a similar point about the non-development property debt of Irish banks, earlier this week.

KPMG says the headline results of the banks appear to suggest a return to profitability, or at least a stemming of losses. However, there continue to be significant increases in impairment charges. Results have been flattered by a number of one off items, including gains on acquisition of own debt and gains on acquisition (Lloyds Banking Group - LBG), which increase overall profitability. The results for the first half of 2009 are a large improvement over the second half of 2008, where the combined losses for the five banks amounted to £48.4 billion.

HSBC reported reduced profits of £3,371 million, down from £5,189 million in June 2008. An increase in impairment charges to £9,357 million (2008: £5,094 million), due to deteriorating economic conditions, was a key driver of the profit reduction. In addition there was a fair value charge of £1,650 million due to an improvement in the credit spread of HSBC’s own debt. This was offset by increased trading income and reduced employee costs.

At RBS, the loss before tax on continuing operations was £244 million compared to a loss of £727 million at June 2008. Increased impairments from £1,661 million to £8,060 million were offset by a gain on redemption of own debt of £3,790 million and a £5,367 million increase in income from trading activities.

KPMG says LBG presented its first set of results and reported a profit before tax of £5,950 million. However, this was due to the negative goodwill arising on the HBOS acquisition of £11,173 million. Excluding this, a loss of £5,223 million arises compared to a profit of £593 million as at 30 June 2008, the deterioration caused predominately by higher impairment charges of £8,053 million, the bulk of which were originated by HBOS, offset by a gain on redemption of own debt of £745m.

Barclays reported an 8.4% increase in profits to £2,984 million from £2,754 million. The increase is attributable to profits in Barclays Capital, which doubled in the period from £524 million to £1,047 million, and a gain of £1,192 million on debt buy-backs. These were offset by rising impairment charges (up 86 percent to £4,556 million) and increased employee costs due to the acquisition of Lehman Brothers North American business in 2008. Profits fell in the Retail and Commercial banking divisions by 61% and 42% respectively.

At all banks, total assets decreased, much of it due to the reduction in derivative balances and lower loans and advances to customers, much of the latter due to foreign exchange movements. Customer deposits fell at HSBC, RBS and Barclays but increased at LBG. Core Tier 1 capital ratios increased at all banks, due to further capital raisings in 2009.

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Bank of England

Bank of England Governor Mervyn King and two other Monetary Policy Committee members supported a rise in the quantitative easing programme by £75 billion this month but were outvoted by the remaining six members.

The 6-3 vote was revealed in the minutes of the MPC's August 5-6 meeting, which was published today. It shows the depth of the governor's concerns about the economy.

The aim of the quantitative easing programme is to buy securities in the market and thereby pump funds into the economy - -  commonly termed "printing money."

UBS and Taxes

Bloomberg reports UBS, Switzerland’s largest bank, will release information on 4,450 accounts to settle a US lawsuit that sought names of American clients suspected of evading taxes.

The Swiss and U.S. governments announced the agreement in separate statements today, resolving a six-month legal tussle that put unprecedented pressure on Swiss banking secrecy. Switzerland pledged to carry through on the request from the US seeking details on those accounts within a year.

UBS, the world’s second-biggest manager of money for the rich, admitted in February to participating “in a scheme to defraud the US” and agreed to pay $780 million and disclose the names of more than 250 clients who allegedly hid assets from the Internal Revenue Service. A day later, the IRS sued the Zurich-based bank for information on as many as 52,000 clients.

US markets

In New York, the Dow is down 12 points.

The S&P 500 and Nasdaq are also slightly down.

Live US Indices

The Dow Jones Stoxx 600 Index fell 0.4% Wednesday, following an earlier slide in the Shanghai Composite of 4.3%.

In Dublin, the ISEQ is up 0.3%.

CRH has gained 1.7% and Greencore is up 4%.