Big banks see profit increase wiped outFines and customer redress hit gains

26 March 2013

Bank sign

A rise in the big banks' core profits in 2012 has been wiped out by fines, customer redress and an accountancy adjustment, according to a new report from KPMG.

PPI is still costing the banks billions

The UK’s major banks recorded a rise in core profits of 45% in 2012 – to a combined sum of £31.5 billion – only to see that increase wiped out by a mixture of regulatory fines, customer redress provisions and the accounting consequences of improved creditworthiness.

This meant that statutory profits recorded by the banks in the report (Barclays, HSBC, Lloyds Banking Group, RBS and Standard Chartered) were down 40% on the previous year at £11.7 billion, according to KPMG.

This £20 billion hit was made up of PPI costs of £7.4 billion, up from £5.7 billion in 2011, other fines and penalties from regulators and redress provisions  of £4.7 billion, and a £12.8 billion accounting hit for losses caused by the revaluation of ‘own debt’, reflecting the credit markets’ more positive view on bank issuers and interest rate movements.

Banks' reputation suffers again

Bill Michael, EMA Head of Financial Services at KPMG, said: 'Banks had a better performance year in 2012 but their improved core profits were eaten up by fines and other exceptional items, leaving them down on 2011.  

'In terms of their reputations, 2012 was a dire year.  This is why it is so important for them to address cultural and ethical perceptions and issues.  Restoring customer trust is critical.'

KPMG listed issues such as the Libor scandal, the mis-selling of derivatives products to smaller businesses, systems failures at a number of banks, and weaknesses in anti money laundering controls as being instrumental in further weakening the reputations of the main UK banks.

The Which? Big Change

The need for banks to improve the way in which they deal with their customers, putting them first and not shareholders and bankers, has been identified by Which? as part of our Big Change campaign.

The campaign was launched by Which? at the end of 2012 with three main aims in mind to start to fix the current state of banking culture:

  • Bankers should put customers first, not sales
  • Bankers must meet professional standards and comply with a code of conduct
  • Bankers must be punished for mis-selling and bad practice.

More on this...

  • Which? Big Change - read about our campaign to change banking culture
  • Bank accounts - find the best bank account for your particular requirements
  • Payment protection insurance (PPI) - how it works and making a claim