World’s biggest banks face £264bn bill for poor conduct

Fines, legal bills and the cost of compensating mistreated customers reached £264bn for 20 of the world’s biggest banks over the five years to 2016, according to new research that raises doubts about efforts by the major financial services players to restore trust in the sector.

This figure is higher than in the previous five-year period – when the costs amounted to £252bn – and is up 32% on the period 200812, the first time the data was collated by the CCP Research Foundation, one of the few bodies that analyses the “conduct costs” of banks.

The report said the data showed that 10 years on from the onset of the financial crisis, the consequences of misconduct continue to hang over the banking sector.

The latest analysis shows that in 2016 the total amount put aside by the banks surveyed rose to more than £28.6bn – higher than in the previous year when there had been a fall from a peak of £63bn in 2014.

Chris Stears, research director of the foundation, writes in the latest report: “Trust in, and the trustworthiness of, the banks must surely correlate to, and be conditional on, banks’ conduct costs. And persistent level of conduct cost provisioning is worrying.

“It remains to be seen whether or not the provisions will crystallise in 2017 [or later] and what effect this will have on the aggregated level of conduct costs.”

Two UK high street banks – Royal Bank of Scotland and Lloyds Banking Group – are in the top five of banks with the biggest conduct costs.

RBS set aside extra provisions for fines and legal costs largely related to a forthcoming penalty from the US Department of Justice for misselling toxic bonds in the run-up to the financial crisis.

That residential mortgage bond securitisation mis-selling scandal is responsible for £66bn of the costs incurred during the five-year period and the single largest factor, according to the foundation.

The payment protection insurance scandal, which is the main reason Lloyds Banking Group is in the list, caused the banks to set aside £27bn during the period. Lloyds has set aside more than £17bn to tackle the mis-selling of PPI.

Roger McCormick, managing director of the foundation, said: “It’s reasonable to assume that the long-running sorry tale of payments and provisions for PPI must come to an end eventually although UK banks made additional provisions for PPI mis-selling of more than £1.5bn midway through 2017.”

The foundation uses five-year rolling periods to try to provide a long-term analysis of the costs that banks face to rectify past mistakes, a major theme of the last 10 years, when they were also hit by penalties for rigging foreign exchange markets and interest rates (Libor).