UK's big four banks face extra £19bn in fines, analysts predict

Time And Money

The UK’s big four high-street banks face another £19bn of conduct and litigation charges by the end of 2016 as they continue to pay the price for past mistakes, according to analysts.

The estimates, from ratings agency Standard & Poor’s, are for Barclays, HSBC, the Royal Bank of Scotland and Lloyds Banking Group. They come on top of £42bn of charges in the five years to 2014.

Including other banks, such as Clydesdale, Yorkshire and Co-op, and the Nationwide and Yorkshire building societies, the total cost of the scandals to hit 13 financial firms over the same period amounted to £48bn.

Lloyds, which is now less than 20% owned by the taxpayer, has incurred a greater cost than any of its rivals because of mis-sold payment protection insurance (PPI). Its PPI bill has topped £12bn, taking the bank’s total provisions for such conduct issues to more than £14bn.

The total cost of the PPI scandal has reached £26bn, S&P calculated. PPI was intended to insure customers against unforeseen events so debt repayments could be made, but was also “a meaningful source of income for banks’ retail divisions”.

The analysts at S&P said: “In general, we think that the worst period for PPI provisions has now passed.” They calculate that provisions for mis-selling interest rate products to small businesses are also coming down.

The agency said: “We assume some banks will still incur material investment banking-related litigation charges in 2015, which, depending on timing, may well outstrip retail conduct charges. That said, we assume that 2015 will be the last big year for litigation charges.”

Banks have already been hit by fines for rigging Libor and the £3.5tn-a-day foreign exchange markets. Barclays, the first to be fined for rigging Libor in June 2012, is yet to agree a settlement for currency markets manipulation, although it has taken a provision of £1.25bn in preparation for a penalty.

“Looking further ahead, we think that conduct and litigation charges are now ‘a way of life’ for the UK banking industry, and that some form of charge seems probable every year for the larger banks and every other year for the smaller institutions (although not nearly on the scale for PPI),” S&P said.

The £19bn estimate for the big four banks in the next two years is less than the £22bn for the past two years and the bill for past errors could start to subside. The extra costs are due to continuing compensation for retail customers but also other issues such as foreign exchange, Libor and money laundering errors of the kind for which HSBC was fined £1.2bn in 2012.

S&P said that banks were attempting to avoid running up big bills in the future for their current treatment of customers and behaviour in financial markets. It said: “Examples of change from the past include the greater role and measurement of conduct issues within banks’ risk appetite framework, banks’ focus on providing evidence that they are doing the right thing for customers, and changed sales practices that are less aggressive or short-termist in nature. Furthermore, chief compliance officers, often hired from regulators, are now typically executive committee members and report directly to the banks’ CEOs.”

Powered by Guardian.co.ukThis article was written by Jill Treanor, for theguardian.com on Monday 27th April 2015 13.01 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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