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, which left statutory profits down 40% on the previous year at £11.7 billion.
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.
KPMG’s Bank Performance Benchmarking Report’s analysis of the performance of the big five banks – Barclays, HSBC, Lloyds Banking Group, RBS and Standard Chartered – concludes that the improvement in core performance from the banks is due to two main factors: better credit performance and stronger investment banking results.
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.”
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