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.

Photo: Getty Images
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Autumn Statement 2015: will women bear the brunt again?

Time and time again, the Chancellor has chosen to balance the books on the backs of women. There's still hope for a better way. 

Today, the Chancellor, George Osborne, presents his Autumn Statement to parliament. Attention will be focused on how he tries to dig himself out of the tax credits hole that he got himself into with his hubristic summer budget.

He’s got options, both in terms of the sweeteners he can offer, and in how he finds the funds to pay for them. But what we will be looking for is a wholesale rethink from the chancellor that acknowledges something he’s shown total indifference to so far: the gender impact of his policy choices, which have hurt not helped women.

In every single budget and autumn statement under this Chancellor, it has been women that have lost out. From his very first so-called “emergency  budget” in 2010, when Yvette Cooper pointed out that women had been hit twice as hard as men, to his post-election budget this summer, the cumulative effects of his policy announcements are that women have borne a staggering 85 per cent of cuts to tax credits and benefits. Working mums in particular have taken much of the pain.

We don’t think this is an accident. It reflects the old-fashioned Tory world view, where dad goes out to work to provide for the family, and mum looks after the kids, while supplementing the family income with some modest part-time work of her own. The fact that most families don’t live like that is overlooked: it doesn’t fit the narrative. But it’s led to a set of policies that are exceptionally damaging for gender equality.

Take the married couple’s tax break – 80 per cent of the benefit of that goes to men. The universal credit, designed in such a way that it actively disincentivises second earners – usually the woman in the family. Cuts and freezes to benefits for children - the child tax credit two-child policy, cuts to child benefit – are cuts in benefits mostly paid to women. Cuts to working tax credit have hit lone parents particularly hard, the vast majority of whom are women.

None of these cuts has been adequately compensated by the increase in the personal tax threshold (many low paid women are below the threshold already), the extension of free childcare (coming in long after the cuts take effect) or the introduction of the so-called national living wage. Indeed, the IFS has said it’s ‘arithmetically impossible’ that they can do so. And at the same time, women’s work remains poorly remunerated, concentrated in low-pay sectors, more often part time, and increasingly unstable.

This is putting terrible pressure on women and families now, but it will also have long-term impact. We are proud that Labour lifted one million children out of poverty between 1997 and 2010. But under the Tories, child poverty has flat-lined in relative terms since 2011/12, while, shockingly, absolute child poverty has risen by 500,000, reflecting the damage that has been by the tax and benefits changes, especially to working families. Today, two thirds of children growing up poor do so in a working family. The cost to those children, the long-term scarring effect on them of growing up poor, and the long-term damage to our society, will be laid at the door of this chancellor.

Meanwhile, at the other end of the age spectrum, low-earning women who are financially stretched won’t have anything left over to save for their pension. More are falling out of auto-enrolment and face a bleak old age in poverty.

Now that the Chancellor has put his calculator away, we will discover when he has considered both about the impact and the consequences of his policies for women. But we have no great hopes he’ll do so. After all, this is the government that scrapped the equality impact assessments, saying they were simply a matter of ‘common sense’ – common sense that appears to elude the chancellor. In their place, we have a flaky ‘family test’ – but with women, mothers and children the big losers so far, there’s no sign he’s going to pass that one either.

That’s why we are putting the Chancellor on notice: we, like women across the country, will be listening very carefully to what you announce today, and will judge it by whether you are hurting not helping Britain’s families. The Prime Minister’s claims that he cares about equality are going to sound very hollow if it’s women who take the pain yet again.