2013-03-26 07:39:15
The major UK banks saw a 45% rise in core profits in 2012, but that hike was
wiped out by a mix of regulation and their own mistakes, a KPMG report says.
Its performance report looks at Barclays, HSBC, Lloyds Banking Group, RBS and
Standard Chartered.
It says the banks' combined core profits last year were 31.5bn.
But this was eliminated by the "cost of past mistakes and increased
creditworthiness of their own debt", the audit firm's report says.
"Dire"
This development meant that the major banks actually saw their statutory
profits slump 40% on the previous year, at 11.7bn, KPMG added.
The banks, it says, were hit by PPI costs of 7.4bn - up from 5.7bn in 2011.
Start Quote
The necessary changes to address conduct and behavioural failings will have a
significant cost
Bill Michael KPMG
In addition, there were other fines and penalties from regulators and "redress
provisions" of 4.7bn, and a 12.8bn 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".
"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,"
said Bill Michael of KPMG.
He added: "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."
'Essential function'
However the report does acknowledge the improvement in core performance from
the banks, and says it is due to two main factors.
Better credit performance has meant that impairment (bad loan) charges have
continued to fall with continued low interest rates enabling the majority of
customers to pay their mortgages and even reduce their credit exposures.
And stronger investment banking results have meant that revenues were generally
up, especially in rates businesses, helped in large part by more positive
sentiment surrounding the future of the eurozone.
But the report also points out that current events in Cyprus show that such
sentiment can be transitory,
"Overall, banks have made progress," said Mr Michael. "They have strengthened
their balance sheets and made strides to bolster their capital.
"They are becoming better able to carry out their essential function of
providing support to businesses and promoting economic growth. However, the
necessary changes to address conduct and behavioural failings will have a
significant cost."