Did the UK banking sector really commit £20.2bn worth of villainy in 2012?

Massive penalties for banks are becoming business as usual.

A couple of weeks ago, I pointed out that the financial results the media most cares about in a post-2008 world are fines and bonuses, rather than profit or turnover.

In the circumstances, I was talking about how any attempt to find something worthy of outrage in Google’s fine or bonus totals was trivial in the context of the digital behemoth’s bottom line.

Now, however, the availability of full year results from the UK’s major banks has prompted KPMG to agree that the numbers connected with reputational capital are now central to banking performance – and not in any woolly long-term sense, but in the here and now.

According to the report, while 2012’s “core profits” for the UK’s Big Five (Barclays, HSBC, Lloyds Banking Group, RBS and Standard Chartered) were up 45 per cent up year-on-year due to lower bad debt and steadier investment banking performance, “regulatory fines, customer redress provisions and the accounting consequences of improved creditworthiness” had in fact blown statutory profits in the other direction, to a level 40 per cent lower than the previous year.

This round of snakes and ladders, according to KPMG, made the difference between a combined core profit of £31.5 bn, and actual statutory profits of £11.7 bn.

Before concluding that the UK banking sector committed £20.2bn worth of villainy in 2012, it must be pointed out that the “key snakeholder” in this set of adverse events, at £12.8bn, was in fact the “accounting consequences of improved creditworthiness” – eg a downward revision of post-tax profits due to the revaluation of "own debt" in the context of increased financial health.

Ironically in this regard, banks were making better profits when they were less creditworthy. But that’s financial reporting for you.

But even taking this into account, KPMG identified around £12bn* of profit modifiers linked directly with misbehaviour, including the PPI mess, the Libor scandal, the mis-selling of derivatives products to SMEs, and weaknesses in anti-money laundering measures.

In a headline statement, the head of KPMG’s EMA Financial Services practice, Bill Michael, said banks had had “a dire year” in reputational terms, adding that the sector’s number one priority at this stage should be “restoring public trust.”

A quick look at the related headlines under any article covering the KPMG report underlines Michael’s point succinctly:

“JP Morgan accused of hiding losses”, “More than 500 bankers paid £1m-plus”, “UBS banker gets $26m 'golden hello'” (feel the acid dripping from those quote marks). “Barclays gets caught out by $900m trade”, “bosses handed £40m bonus pot” – the list could go on for paragraphs.  

With these “exceptional events” becoming everyday occurrences for an increasingly jaded customer base, one has to wonder whether the sector is capable of reinventing its behaviour from the ground up, or whether it would be better off just considering the regular imposition of massive penalties to be business as usual.  

* According to KPMG, the £20.2bn difference in core and statutory profit was a net figure, comprising around £24.8bn in negative modifiers, and £4.6bn in positive ones.

Fireworks from KPMG. Photograph: Getty Images

By day, Fred Crawley is editor of Credit Today and Insolvency Today. By night, he reviews graphic novels for the New Statesman.

Jeremy Corbyn delivers a speech on the arts in north London on September 1, 2015. Photograph: Getty Images.
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Can Labour MPs force Corbyn to bring back shadow cabinet elections?

It is not up to the parliamentary party whether the contests are reintroduced. 

Soon after Jeremy Corbyn became the frontrunner in the Labour leadership contest, it was reported that he intended to bring back shadow cabinet elections. But as I later wrote, that's not the case. Corbyn has resolved that he will maintain the right to appoint his own team, rather than having it elected by MPs (as was the case before Ed Miliband changed the system in 2011). As he wrote in the NS: "Whoever emerges as leader on 12 September needs a shadow cabinet in place as soon as possible. I will appoint a strong, diverse shadow cabinet to hold this government to account from day one."

Now, ahead of his likely victory a week on Saturday, Corbyn is under pressure from some MPs to reverse his stance. Barry Sheerman, the former education select commitee chair, told me that he wanted a "serious discussion" within the PLP about the return of the elections. While some support their reinstatement on principled grounds, others recognise that there is a tactical advantage in Corbyn's opponents winning a mandate from MPs. His hand would be further weakened (he has the declared support of just 14 of his Commons colleagues). 

But their reinstatement is not as simple as some suggest. One senior MP told me that those demanding their return "had not read the rule book". Miliband's decision to scrap the elections was subsequently approved at party conference meaning that only this body can revive them. A simple majority of MPs is not enough. 

With Corbyn planning to have a new team in place as soon as possible after his election, there is little prospect of him proposing such upheaval at this point. Meanwhile, Chuka Umunna has attracted much attention by refusing to rule out joining the left-winger's shadow cabinet if he changes his stances on nuclear disarmament, Nato, the EU and taxation (a lengthy list). Umunna is unlikely to remain on the frontbench but having previously pledged not to serve, he now recognises that there is value in being seen to at least engage with Corbyn. Were he to simply adopt a stance of aggression, he would risk being blamed if the backbencher failed. It is one example of how the party's modernisers recognise they need to play a smarter game. I explore this subject further in my column in tomorrow's NS

George Eaton is political editor of the New Statesman.