The UK’s major banks made combined profits of £31.5 billion last year, but the figure was wiped out by a mix of regulatory fines and payments for mis-selling scandals such as PPI.
A new report by accountants KPMG found core profits achieved by the UK’s big five banks RBS, Barclays, HSBC, Lloyds Banking Group and Standard Chartered soared by 45% in the last year.
But ongoing payouts to deal with payment protection insurance claims, fines relating to the Libor inter-bank lending rate scandal and a write-down on debt led to a £20bn hole in the quintet’s finances.
On a statutory basis, profits accrued by the banks last year came in at £11.7bn a 40% drop during the year.
The total cost of PPI payments by the group came in at £7.4bn £1.7bn more than was paid out in 2011 while a further £4.7bn went on fines and penalties from various financial watchdogs and other redress provisions.
The largest loss of £12.8bn came through the banks’ revaluation of ‘own debt’ a move that reflects the credit markets’ more positive view on bank issuers and interest rate movements.
Bill Michael, head of financial services at KPMG, said the banks had made progress but there were further hurdles ahead in the forms of structural and other regulatory change that will drag on 2013 performance.
“They have strengthened their balance sheets and made strides to bolster their capital,” Mr Michael said.
“They are becoming better able to carry out their essential function of providing support to businesses and promoting economic growth. However, the necessary changes to address conduct and behavioural failings will have a significant cost.
“Further, there is a gathering storm of structural and other regulatory changes heading banks’ way such as ring-fence electrification in the UK, global derivatives market reform, and the EU’s plan for a financial transaction tax and cap on bankers’ bonuses to name but a few. These will continue to require considerable management time and effort.
“While many are necessary changes to right the wrongs of the past, more could be done to streamline them and make sure they are consistent, thereby increasing the time and resource available to the most important banking objective of all: driving economic growth.
“2012 was a successful trading year marred by large one-off costs. In terms of the wider economy, although 2013 has begun on a note of renewed optimism, the economic fundamentals have yet to catch up.”
Mr Michael said there was also one fundament off-balance-sheet issue the banks still had to tackle. “In terms of their reputations, 2012 was a dire year,” he said. “This is why it is so important for them to address cultural and ethical perceptions and issues. Restoring customer trust is critical.”