20 major world banks saw £264bn misconduct costs over five years
The cost of compensating mistreated customers reached £264bn ($342bn) for 20 of the world’s largest banks over the five years to 2016, according to data collated by the CCP Research Foundation. The figure is higher than the £252bn for the previous five years, a 32% increase. Two UK banks, Royal Bank of Scotland and Lloyds, are among the five with the highest conduct costs due to controversies over mortgage bonds and the payment protection insurance scandal respectively. The other banks in the top five are Bank of America, JP Morgan and Morgan Stanley.

Fines, legal bills and the cost of compensating mistreated customers reached £264bn for 20 of the world’s biggest banks over the five years to 2016, according to new research that raises doubts about efforts by the major financial services players to restore trust in the sector.

This figure is higher than in the previous five-year period – when the costs amounted to £252bn – and is up 32% on the period 2008-12, the first time the data was collated by the CCP Research Foundation, one of the few bodies that analyses the “conduct costs” of banks.

The report said the data showed that 10 years on from the onset of the financial crisis, the consequences of misconduct continue to hang over the banking sector.

The latest analysis shows that in 2016 the total amount put aside by the banks surveyed rose to more than £28.6bn – higher than in the previous year when there had been a fall from a peak of £63bn in 2014.

Chris Stears, research director of the foundation, writes in the latest report: “Trust in, and the trustworthiness of, the banks must surely correlate to, and be conditional on, banks’ conduct costs. And persistent level of conduct cost provisioning is worrying.

“It remains to be seen whether or not the provisions will crystallise in 2017 [or later] and what effect this will have on the aggregated level of conduct costs.”

Two UK high street banks – Royal Bank of Scotland and Lloyds Banking Group – are in the top five of banks with the biggest conduct costs.

RBS set aside extra provisions for fines and legal costs largely related to a forthcoming penalty from the US Department of Justice for mis-selling toxic bonds in the run-up to the financial crisis.

That residential mortgage bond securitisation mis-selling scandal is responsible for £66bn of the costs incurred during the five-year period and the single largest factor, according to the foundation.

The payment protection insurance scandal, which is the main reason Lloyds Banking Group is in the list, caused the banks to set aside £27bn during the period. Lloyds has set aside more than £17bn to tackle the mis-selling of PPI.

Roger McCormick, managing director of the foundation, said: “It’s reasonable to assume that the long-running sorry tale of payments and provisions for PPI must come to an end eventually although UK banks made additional provisions for PPI mis-selling of more than £1.5bn midway through 2017.”

The foundation uses five-year rolling periods to try to provide a long-term analysis of the costs that banks face to rectify past mistakes, a major theme of the last 10 years, when they were also hit by penalties for rigging foreign exchange markets and interest rates (Libor).

“As has been the case since the first table, we find ourselves wondering when, if ever, the level of conduct costs will start to decrease,” said McCormick.



He noted that the 2016 figures showed a rapid decline in fines from the Financial Conduct Authority, which issued fines worth £819m in the first six months of 2015 alone, as a result of the market-rigging scandals.

Top of the table are major US banks Bank of America, which dominates the table because of its previous bill for the toxic bond mis-selling scandal, JP Morgan and Morgan Stanley.

The figures include money set aside for future penalties by the 20 banks and fines and other costs they have incurred to tackle regulatory and legal claims.

Stears said there would not be zero conduct costs but added: “The question is at what average level will these costs settle? And, moreover, is that level acceptable to the banks, their shareholders and the public?”