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25 March 2013updated 22 Oct 2020 3:55pm

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

Massive penalties for banks are becoming business as usual.

By Fred Crawley

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.

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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.

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