UK banks set for grim results showing size of turnaround task

* Misconduct charges, restructuring costs set to hit profits

* They would compound effect of record-low interest rates

* UK lenders also face investor concerns over Brexit

* Shares of five biggest collectively down 11 pct this year

By Lawrence White and Andrew MacAskill

LONDON, April 25 (Reuters) - Britain's top banks are set forone of their worst first-quarter earnings seasons since thefinancial crisis, adding to their struggle to win over investorsagainst a backdrop of misconduct charges, a weak economicoutlook and uncertainty over Brexit.

Despite shoring up their capital bases and paying out strongdividends, the five biggest banks - HSBC, Barclays, Standard Chartered, Lloyds Banking Group and Royal Bank of Scotland - have collectivelyseen their shares fall about 11 percent this year against a 1.5percent rise in the FTSE 100.

The costs of laying off staff, compensating customersmissold loan payment protection insurance and stockpiling cashto settle outstanding lawsuits and regulatory investigations areall expected to compound the hit to quarterly profits fromrecord-low interest rates.

Most analysts expect earnings to fall at the big five banks,with Barclays, HSBC and Standard Chartered thought most likelyto suffer the biggest hits because of their large investmentbanking operations.

The turmoil in global equities and commodities markets thisyear made it harder for investment banks to make money intraditional business lines such as trading and advisory. Barclays warned investors this month that its first-quarterinvestment banking earnings were likely to fall.

"Expectations for Q1 results are rock bottom," Bernsteinanalysts said of big British banks, and posed the question:"Will this be a one-off ugly set of results or is it setting upthe table for a very bleak 2016?"

Standard Chartered will be the first UK lender to reportresults, on Tuesday, two months after announcing its firstannual loss in 26 years after slashing jobs and selling unwantedbusinesses in a bid to cut costs.

Such restructuring exercises by other top UK banks like HSBCand Barclays have helped to control costs but left analystsuncertain as to where growth will come from given the globaleconomic outlook and regulatory problems.

The major U.S. banks have this month set the tone for adismal quarter, with Goldman Sachs last week joiningpeers in reporting plunging profits as market volatility hit itsbond trading and investment banking businesses.

BREXIT

Many British banks are struggling to boost profits withinterest rates at a record low.

A key measure of their earning power is the net interestmargin (NIM), the difference between the interest they get fromborrowers and what they pay savers, and this is generallynarrower when rates are low.

Lloyds, which reports earnings on Thursday, is expected tosee its first-quarter NIM contract to 2.6 percent from 2.7percent in the same period a year earlier, according to theaverage of analysts' forecasts.

RBS, which reports on Friday, will also report NIM of 2.6percent according to analysts' estimates, up slightly from thesame period in 2015.

By contrast, the measure was on average 3.5 percent acrossthe British banking sector in 2009, according to an analysis byCass Business School published last year.

"You are going to have relatively disappointing earningsacross the board," said Ian Gordon, analyst at InvestecSecurities in London. "I don't have a rosy-glowed view of anear-term turnaround."

Adding to investor uncertainty, this is the first set ofresults where the government's 8 percent surcharge on banks'profits will apply after rules changed at the start of the year,largely replacing an earlier levy based on balance sheet assets.

British bank stocks are also being depressed by politicaluncertainty, with some investors steering clear of the sectorahead of the June 23 vote on Britain's membership of the EU.

"Whilst UK banks are keeping relatively quiet on the EUreferendum debate in their annual reports, uncertainty over theoutcome is weighing heavily on them," said Tim Howarth, bankingpartner at KPMG.

(Editing by Sinead Cruise and Pravin Char)