Banks getting bashed
- Top UK banks lose 60% of profits to fines and customer repayments;
- Penalties totalling £38.7Bn in four years hit five banks;
- Investors now worried over banks’ return on equity.
FINES and customer repayments have cost the UK’s biggest banks 60% of their profits in the last four years, according to a report by accountancy firm KPMG.
Repayments for Payment Protection Insurance (PPI) and interest rate hedging products cost banks £9.9Bn last year – a reduction of 8% from 2013, said KPMG.
BBC Business reports accountants analysed the results of Royal Bank of Scotland, Lloyds, HSBC, Barclays and Standard Chartered, who collectively clocked up penalties totalling £38.7Bn since 2011.
Banks have been repaying customers who did not want, ask for or understand PPI – an insurance against missing loan repayments. Their PPI bill is now £24.4Bn, according to consumer group Which?
Nine UK banks have reimbursed business customers £1.8Bn after selling them complex fixed rate deals they probably did not understand or were likely to cost them more than a standard variable loan.
Another source of worry for banks will be their return on equity, a profitability measure showing how much money they make for investors, says the report. It is currently below their cost of capital – that which investors demand for the risk in investing in banks.
But a stronger capital base after tighter regulations forced them to raise money or keep profits means banks were in a “healthier shape,” it said.
HSBC, Royal Bank of Scotland, Swiss bank UBS and US banks JP Morgan Chase, Citibank and Bank of America were all fined a collective total of £2.6Bn by UK and US regulators for their attempts to manipulate foreign exchange rates.