First half earnings from Lloyds Banking Group (LON:LLOY), Royal Bank of Scotland Group plc (LON:RBS) and Barclays plc (LON:BARC) were varied but they all had one thing in common – persistent struggles with past misconduct.
The latest of UK banks to report, RBS, said it suffered litigation and conduct charges of £396mln.
This included £151mln was towards its US$5.5bn settlement with the Federal Housing Finance Agency for misdeeds relating to the sale of mortgage-backed securities between 2005 and 2007.
The bank, which remains more than 70% owned by the government following its 2008 bailout, expects a much heftier penalty for the loan mis-selling scandal once it wraps up negotiations with the US Department of Justice.
RBS was also hit with a £25mln charge in the first half for its settlement with investors who claimed they were misled over the bank’s financial state during a 2008 rights issue.
Adding to its grief, the bank revealed it was being investigated by the Financial Conduct Authority into compliance with money laundering rules.
“The spectre of those fines is weighing on the bank, causing it problems in stress tests, and even contributing to the lower net interest margin this time round,” Nicholas Hyett, equity analyst at Hargreaves Lansdown, said after RBS published its first half results.
“Until they can be put to bed, all the good work that RBS has done will continue to get lost in the noise.”
PPI saga drags on at Lloyds
Likewise, Lloyds has been having a hard time tidying up its past.
The bank set aside an extra £1bn in the first half to cover claims for mis-sold payment protection insurance (PPI), bringing its total provision to £18bn.
The Financial Conduct Authority has set an August 2019 deadline for PPI claims, and while Lloyds is hoping that the provisions it has put aside will see it through until then, costs could still rise.
“PPI remains a thorn in the side of Lloyds and it could yet get worse,” Neil Wilson, senior market analyst at ETX Capital, warned.
“The bank stressed that ‘risks and uncertainties remain’ with respect to future volumes of claims. Costs could easily rise again.”
In the first half Lloyds also earmarked £283mln to repay 590,000 mortgage customers mistakenly charged from 2009 to 2016 after going into arrears.
In addition, it booked a £100mln provision to compensate victims of fraud at its HBOS Reading branch that involved siphoning money from struggling businesses.
However, Lloyds has missed its own deadline of making compensation deals before the end of June and one of the victims, TV star Noel Edmonds, wants £300mln for losses suffered by his Unique Group business in the loans scam.
Barclays also tackling PPI claims
Barclays is also grappling with its own PPI problems. The lender set aside an extra £700mln for the PPI mis-selling scandal in the first half, which contributed to an attributable loss of £1.2bn.
In a separate issue, chief executive Jes Staley is being investigated by the Financial Conduct Authority and the Prudential Conduct Authority for trying to unmask a whistleblower. Barclays said the investigation is ongoing and the bank and Staley are “co-operating fully” with the regulators.
On top of that, Barclays is being investigated for its involvement in manipulating the London interbank offered rate (Libor) and euro interbank ofered rate (Euribor).
Further afield, Barclays and four of its former top executives will appear in court on 9 January 2019 to begin a trial over the bank’s emergency fundraising in 2008, a judge said today.
The lender, ex-chief executive John Varley and former bankers Roger Jenkins, Thomas Kalaris, and Richard Boath, have been charged by the Serious Fraud Office with conspiracy to commit fraud over undisclosed payments made to Qatari investors as part of negotiations for a capital injection.