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The escape committees at Barclays and HSBC can breathe a sigh of relief. They tunnelled a clean break, while Royal Bank of Scotland and Lloyds Banking Group remain so entangled in bad loans they are stuck in the UK government sanatorium. Barclays’ half-year profits rose by 10 per cent to almost £3bn. Although HSBC’s profits halved, it still made $5bn. Both relied heavily on their investment bank divisions, compensating for higher bad debt charges elsewhere.

These are rising fast. In the first half, Barclays’ bad debt charges leapt by almost 90 per cent to £4.6bn, while HSBC’s surged almost 40 per cent to $13.9bn. Both banks have already taken preventative action. Barclays raised capital from Gulf investors last year to bolster its equity. This year it hawked the family silver: the sale of Barclays Global Investors will lift its core tier one capital ratio to 8.8 per cent. HSBC, gored by its US consumer finance business, meanwhile raised $17.8bn in an elephantine rights issue in April. Its capital ratio is now the same as that of Barclays.

Capital generation is now the sole preserve of their investment bankers. Like their US counterparts, both banks have reaped the benefits of less competition and solid customer flows in debt and currency trading. Barclays Capital, which acquired Lehman Brothers’ US operations, boosted its bond issuance business and almost doubled profits to £1.05bn. HSBC’s investment bank, meanwhile, had a record half. It made $6.3bn, more than it did in the whole of 2007.

That is just as well as there is no other obvious escape route from the toiling weight of bad loans – in the US for HSBC and in the UK, Europe and emerging markets for Barclays. More promisingly, the investment bankers reckon these contributions are sustainable. Investors marked up HSBC by 5 per cent and Barclays by 6.7 per cent. If both banks can make that much in a crisis, in spite of high bad debts, how much better might they fare when recovery comes? The first to escape have the best chance.

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