News

Underlying profits at the UK’s top five banks climbed to £31.5bn in 2012, but these gains were largely wiped out by regulatory fines that marred the sector’s reputation, according to a new report.

Annual underlying pre-tax profits at Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered rose 45 per cent, according to KPMG, the accountant.

This reflected a continued fall in bad loan charges. Stronger investment banking results also helped. However, these gains were undermined by £20bn in fines and other exceptional items, which left statutory profits down 40 per cent on 2011 at £11.7bn.

Included in the £20bn was £7.4bn in fines for the mis-selling of payment protection insurance. which covers loan repayments in the event of accident, sickness or redundancy and had been widely sold to those who could not claim. There was a further £4.7bn in other fines and penalties

“In terms of their reputations, 2012 was a dire year,” said Bill Michael, a financial services specialist at KPMG.

The banks had also taken an artificial £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.

KPMG found that the five financial institutions had strengthened their balance sheets and made strides to bolster capital in 2012.

The analysis precedes a decision this week by the Bank of England’s Financial Policy Committee on what banks should do to tackle any capital shortfall.