The cost of fines, legal bills and customer compensation racked up by the world’s 20 biggest banks over the five years to the end of 2015 amounted to £252bn, according to new research.
So called “conduct costs” for the 20 banks rose 4.1%, or £10bn, compared with the previous rolling five-year period, 2010-2014. UK-based financial institutions Lloyds Banking Group, Royal Bank of Scotland and Barclays accounted for £11.3bn of extra costs while charges at five other banks fell.
The figures were compiled by the CCP Research Foundation, one of the few organisations to collate data published by banks. The numbers include money set aside for future penalties by the 20 banks, selected because they are important for the stability of the financial system.
The five-year total is up almost 28% on CCP’s first survey, which covered 2008 to 2012 and began in the early stages of the financial crisis. Costs have increased as regulators have clamped down and unearthed scandals such as the rigging of Libor rates and foreign exchange markets.
However, after rising for the previous four years, the single-year total for all banks in the survey fell in 2015 to £28bn from a peak of £63.6bn in 2014.
CCP provisions against future costs of £66bn meant the costs of misconduct would continue to affect banks’ profits. But fines against banks appear to have peaked with the record $5.7bn (£4.3bn) doled out last year to six banks for rigging foreign exchange, including £1.5bn for Barclays and £430m for RBS.
British banks were responsible for £66.5bn of the total, up from £54.6bn in the previous five-year period. The main contributor to the rise was Lloyds, where costs rose £4.7bn to £20.2bn – the biggest increase in the survey. The bank has paid large fines and took a £4bn charge last year for mis-selling of payment protection insurance.
RBS’s costs had the next biggest increase, up £3.8bn to £14.7bn, while Barclays’ costs rose £2.8bn to £15.4bn. Taken together, the three British banks’ conduct costs rose 29%. HSBC’s costs rose £1.2bn to £9.9bn and Santander’s fell by £720m to £6.23bn.
Barclays’ increase was matched by Deutsche Bank, whose costs rose to £12.2bn from £9.4bn. All other banks had smaller increases or falling costs. Bank of America had the biggest decrease, with costs dropping almost £10bn to £54.8bn, although that was the biggest total.
Roger McCormick, CCP’s managing director and head of the conduct costs report, said: “It remains to be seen whether banks can truly claim that these problems are now behind them (whether or not the costs themselves may be) and reassure us that they are legacy issues.
“We look forward to the time when we can report on marked and sustained falls in conduct costs. Not even the largest banks can now settle for regarding them merely as costs of doing business. The public would hardly condone such an attitude or see it as consistent with a desire to regain trust.”
Fines imposed by the UK’s Financial Conduct Authority plunged more than 99% in the first half of 2016 to £7.2m from £819m a year earlier. CPP said this suggested provisions were for costs other than fines.
The FCA, whose chief executive Andrew Bailey started on 1 July, may face questions on the drop-off in fines at its annual public meeting on Tuesday.