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Big banks 'face £19bn charges bill'

Britain's big four banks face a further £19 billion in charges to cover misconduct and litigation this year and next as the pay-outs become a "way of life", according to a new report.

The sum will be in addition to the £42 billion paid out by Barclays, HSBC, Lloyds, and Royal Bank of Scotland in the five years to 2014, according to research by ratings agency Standard & Poor's (S&P).

It predicts 2015 will be the worst year for charges for the big four, totalling just under £14 billion, with £5 billion pencilled in for next year.

The sums include the vast costs of compensation for the mis-selling of payment protection insurance (PPI) as well as for financial products known as interest-rate swaps mis-sold to small businesses.

There are also "other customer redress and litigation charges". Banks have paid out large sums to regulators in the UK over scandals such as Libor rate-rigging and foreign exchange manipulation.

S&P said the £42 billion charges over five years for the big four banks are equivalent to 7.5% of their revenues during the period, and are on top of £16 billion restructuring costs faced by these companies over this period.

The banks have also incurred more than £5 billion of expenses related to the UK's bank levy since 2011, the report said.

It found the pay-outs from the big four represented 88% of the total of £48 billion in charges faced by 13 UK banks and building societies. The largest contributor to this is PPI, estimated at £26 billion, or 55% of the total.

Lloyds - which is still more than 20% state-owned - has incurred the biggest sums, at around £15 billion, largely due to its PPI bill of £12 billion. It is followed by RBS, 80% state-owned, at £10 billion, then Barclays and HSBC.

The report said the worst period of PPI provisions now appears to have passed. These are expected to total just over £5 billion over the next two years.

Charges for interest rate swaps are expected to fall. More pay-outs over investment banking misconduct were expected this year. The report said 2015 would be "the last big year for litigation charges".

"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," it added.

"This reflects the intrusive nature of regulation to the benefit of customers rather than the banks, strong media attention, and the proactive role of claims management companies.

"On the litigation front, we note an increased propensity of regulators to bring cases against banks, particularly the multiple US regulators to which some banks are subject."

The report found that UK banks were "making substantial strides to ensure that products sold today do not lead to future problems, with less aggressive sales practices and beefed-up chief compliance officer roles.

But it added that these changes "cannot on their own mitigate against selling of misconduct risks".

"The fundamental changes in culture being enacted will take many years to permeate through all areas of large and complex banking groups."


From Belfast Telegraph