UK Banks Have Lost £53bn Due to “Misconduct” in 15 Years


April 2016

UK Banks Have Lost £53bn Due to “Misconduct” in 15 Years

Recently released research has claimed that continuous misconduct, and a belligerent sales culture has resulted in UK building societies and banks paying £53bn in legal fees, compensation and fines in the past 15 years.

The research, which was published on Monday, states that the misselling of  payment protection insurance (PPI) has now cost the banking sector around £37.3bn- the equivalent of hosting the 2012 Olympics four times over.

The figures have been compiled by the New City Agenda think tank. The report goes on to say that the second most expensive in the list was the misselling of interest rate swaps, which cost around £4.8bn.

The former Labour MP, John McFall, who chaired the Treasury select committee, said:

“The profitability of UK retail banks has been imperilled by persistent misconduct and an aggressive sales-based culture. This has made every citizen poorer through our pension funds and our ownership of the bailed-out banks.

“They should demand public and transparent assessments of the progress each individual bank is making. Where senior executives preside over misconduct, shareholders must ensure that they are held accountable and demand significant clawback of bonuses.”

In November 2014, the think tank said that the banking culture in the City of London would take a generation to change for the better after they calculated that British banks had been fined in excess of £38.5bn in the 15 years previous to then.

This report does not include scandals in the investment banking industry such as the Libor rigging scandal or FX markets. It highlights the selling of packaged bank accounts as the fastest developing scandal at the moment. This involves banks selling their customers insurance and other products in conjunction with their current accounts. This has resulted in £850m worth of costs to date.

The bank hit with the most costs between 2010 and 2014 is Lloyds Banking Group. The group, which is still roughly 9% state-owned, has had to put aside £14bn to make up for its mistakes; the group has paid out around £2.1bn in bonuses in the same period.

The bank took over HBOS in 2008, and was bailed out to the tune of £20bn. It has paid out around £500m in dividends in that time, although it was prevented from doing so for part of that period.

The report from New City Agenda says that if the misconduct charges were not an issue, the banks would be profitable. It read:

“This makes it even more important for shareholders to engage and monitor the progress made by banks in changing their cultures.”

Any attempts to regulating the banking culture has been met with resistance in recent times. After the Libor rigging scandal, a Banking Standards Board was set up with the aim of tackling the irresponsible culture that is reported to be rife within the industry. However, in its yearly report it was revealed that it is still yet to publish any official guidelines for standards within banks.

Last year the FCA (Financial Conduct Authority) was heavily criticised for its decision to discontinue an official review into banking culture. The regulator said last week that it still considers the monitoring of culture to be one of its key roles.

Standard & Poor’s, the rating agency, said last year that the “big four” banks still faced around £19bn worth of litigation and conduct charges this year- in addition to the £42bn they had to pay in the five years to 2014.