Royal Bank of Scotland hit by year of scandals
Taxpayer-backed Royal Bank of Scotland took centre stage in the banking sector in 2016 after a year dominated by scandals and fears over its balance sheet.
Weekly Business Digest Newsletter
It was yet another annus horribilis for the group after it failed Bank of England stress tests, faced more controversy over its treatment of struggling businesses, and saw Santander ditch talks to buy its Williams & Glyn branches for a second time.
RBS was also hit with another mis-selling settlement in the US and has been weighed down by fears over the potentially mammoth cost of outstanding claims in America.
It has been a difficult year for all the players as they have faced yet more bills for the payment protection insurance (PPI) scandal and seen profits come under pressure after interest rates were halved.
The Brexit vote also sent shockwaves through the industry, sending shares tumbling in players such as Barclays, Lloyds Banking Group and RBS amid fears over the impact on the economy.
RBS and Lloyds shares have yet to recover to levels seen before the June 23 referendum, while worries over the impact of Brexit on the City's standing remain ahead of negotiations to quit the EU.
The Bank of England's actions to shore up the economy since the Brexit decision has cast a further shadow over the sector, with the reality of lower for longer interest rates putting strained interest margins under more pressure.
Some of the investment banking players were helped by stock market volatility and sharp currency moves in recent months since Brexit and the shock US presidential victory for Donald Trump.
Barclays saw a 35% surge in third quarter profits after a bond trading revival boosted its investment banking arm, in line with buoyant trading for its Wall Street counterparts.
But like many of its UK rivals, its results showed the cost of the ever-escalating bill for PPI.
The mis-selling scandal weighed on many of the major lenders, with billions more set aside after the City watchdog announced plans in the summer to push back the deadline for claims by a year.
The Financial Conduct Authority put a June 2019 deadline on claims in an effort to draw a line under what has been one of the biggest banking scandals in history, costing the industry more than £30 billion so far.
Lloyds set aside another £1 billion to cover PPI, while Barclays added £600 million and RBS revealed an extra £450 million after the claims deadline was extended.
But RBS, still 73% owned by the taxpayer after its bailout at the height of the financial crisis, faced a barrage of mis-selling payments and legal settlements that has dwarfed those of its competitors.
In November, the bank announced £400 million to compensate as many as 4,000 small and medium-sized businesses following allegations t hey were mistreated by the bank's Global Restructuring Group after the financial crisis.
This will hit its fourth quarter results, compounding woes after it swung to a £469 million loss in the third quarter.
Weeks after the small business compensation bill was revealed, RBS failed the Bank of England's stress tests and was forced to raise around £2 billion to boost its balance sheet strength.
It is understood the main reason the Bank failed the annual health check was the threat of a huge fine for mis-selling of US mortgage securities - which could run as high as £12 billion.
A settlement on this scale would further put back any hopes of profitability.
The stress test has heaped more pressure on RBS boss Ross McEwan, who has still to secure a sale of its 300-strong network of branches under the Williams & Glyn brand.
RBS has to sell the branches to meet EU rules on state aid, but it has repeatedly missed the deadline after Santander walked out on talks twice, while costs of trying to separate out the business have hit more than £1.3 billion.
Michael Hewson, chief market analyst at CMC Markets, said RBS continues to be the "ugly sister of the UK banking sector".
He said the Government has written down the value of its stake in RBS twice this year, down to £14.8 billion, from £21.5 billion in March.
There was also disappointment surrounding fellow part-nationalised player Lloyds after Chancellor Philip Hammond ditched predecessor George Osborne's plans for a retail share sale to the public.
Mr Hammond said the remaining Lloyds stake would be sold to large institutional investors due to market volatility.
It was seen as missing an opportunity to "democratise retail investing", according to one expert, although Mr Hammond said the move would ensure the Government could recoup the entire £20.3 billion used to bail out the bank.
But there is little hope of taxpayers ever getting back the £45 billion used to rescue RBS and the embattled bank looks set to remain on government books for many years.