Britain’s banks are facing a costly 2016, which will see them hit with billions of pounds more in fines and lawsuits, as well as continuing to pay out on thousands of new PPI claims.
Top analysts at Investec asset management are warning that legacy issues like PPI mis-selling, rigging of interest and foreign exchange rates and the bribing of Middle East investors are likely to cost them dear in the coming year.
RBS
Investec’s Ian Gordon said: “Fines will be an on-going drag on the banks, but more so on RBS than on anyone else. Depending on the size and timing of fines, 2016 could be another loss-making year for RBS.”
The taxpayer owned bank is braced for multi-billion pound settlements in America for their role in mis-selling ‘toxic bundles of mortgage debt’ before the financial crisis of 2008.
Biggest case
It is the biggest case RBS are facing, with the Federal Housing Finance Agency lodging a claim for £8.3 billion – more than four times the amount the bank has so far set aside to meet the cost.
However, things are likely to get even worse because the US Department Of Justice is also expected to impose a financial penalty for the same issue. The actual amount is not yet known, but Ian Gordon expects it to be somewhere around £1.3 billion.
Misconduct
He is also predicting that RBS will need to set aside a further £4 billion to cover other forms of misconduct. This includes a potential fine from European regulators over the FOREX manipulation scandal where a number of European banks are alleged to have colluded to rig the £multi trillion foreign exchange market for their own advantage.
Another cloud on the horizon is an expected court case where angry RBS investors are suing former boss Fred ‘The Shred’ Goodwin and other executives for a further £4 billion for misleading them about the state of the bank’s finances before a £12 billion rights issue in 2008. Just months after the rights issue went through, RBS had to be bailed out by the taxpayer for £45.5 billion.
Barclays
Barclays is another of the big four UK banks who Investec thinks is going to have to set aside billions of pounds to pay for past wrongdoing. The best estimate they can give is £2.5 – £3 billion.
The bank has already set aside £5.97 billion to pay out successful claims for the mis-selling of PPI, but Investec expect the figure to top £6 billion in 2016.
Settlement
Barclays ended 2015 by offering to pay in settlement of the US regulator’s claim that ‘unsuitable’ mutual fund transfers had left some of its customers out of pocket. The overall payment of £9.3 million will cover both compensation to the customers and the penalty imposed by the US Financial Industry Regulation Authority.
The past year has also seen a £72 million fine from the UK’s Financial Conduct Authority (FCA) for failing to carry out proper anti money laundering and financial crime checks, £9 million to the US regulator relating to the LIBOR rigging scandal and a fine of just over £100 million relating to FOREX offences.
Investigation
Finally, the bank is under investigation by the Serious Fraud Office (SFO) into allegations that it paid £322 million in bribes to secure £12 billion worth of funding from Qatar and Abu Dhabi to avoid having to be bailed out by the government at the time of the financial crisis.
It is understood talks are on-going between Barclays and the SFO about a possible agreement where the bank might avoid prosecution by coming to a plea deal which would involve paying a big fine and agreeing to reforms.
PPI
The biggest financial mis-selling scandal in UK history looks like it will take a major turn in 2016 when the FCA announces its decision on the long-awaited deadline for future PPI cases.
The FCA has already voiced is support for the scheme, which is expected to start in the Spring and give consumers just two years in which to make a claim before they lose the chance to do so forever.
Compensation
Britain’s banks have already paid £21.8 billion in compensation, but they have set aside around a further £6 billion to pay off future claims. However, all banks in their latest quarterly figures have said that the future level of payouts is uncertain and they may have to set aside more money if the number of claims increases.
The announcement of the forthcoming deadline is expected to prompt tens of thousands of consumers to make their claims, particularly as it will be backed by a £42 million advertising campaign, paid for by the banks, warning them to do so before time runs out.
Record fine
Lloyds were hit with a record fine of £117 million in June 2015 for ‘failing to treat their customers fairly’ when investigating PPI complaints between March 2012 and May 2013.
The FCA said: “The size of the fine today reflects the fact so many complaints were mishandled by Lloyds. Customers who had already been treated unfairly once by being mis-sold PPI were treated unfairly a second time and denied the redress they were owed. Lloyds’ conduct was unacceptable.”
Lloyds has sold more PPI policies than any other UK bank and has already set aside approximately half of the UK total for paying successful claims. Analysts now believe their compensation pot will top the £14 billion mark in 2016.
Sources:
https://www.fca.org.uk/consumers/financial-services-products/insurance/payment-protection-insurance/ppi-compensation-refunds
http://www.thisismoney.co.uk/money/news/article-3377869/Banks-facing-year-strife-Lenders-punished-billions-pounds-worth-fines-lawsuits-2016-experts-predict.html
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/12073962/barclays-bank-us-fine-13m-mutual-funds-transactions-finra.html
https://www.fca.org.uk/news/lloyds-banking-group-fined-for-failing-to-handle-ppi-complaints-fairly
The post UK banks face a costly 2016 appeared first on Gladstone Brookes.