Credit: DAVID ILIFF. License: CC-BY-SA 3.0

£53bn: The cost of the banks' biggest misdeeds

From PPI to unfair current account charges, Britain's big banks have had to pay out bundles in compensation.

by Jack Torrance
Last Updated: 11 Apr 2016

The PPI scandal continues to be a weight around the neck of Britain’s big banks. Just last week it emerged they could still only be half way through the pay-outs they’ve had to stump up in redress. But it’s not the only scandal that’s hit banks, or more accurately banks’ shareholders, in the pocket.

From the mis-selling of endowment mortgages to breaches of the consumer credit act, banks have had to set aside many billions to cover the cost of their misbehaviour. According to the New City Agenda think-tank, the total cost of the top 10 scandals works out at £53bn.

PPI is obviously the biggest, weighing in at £37.3bn, or four times the cost of hosting the London Olympics. But the mis-selling of interest rate ‘swaps’, which hit some small businesses hard, will cost the banks £4.8bn. And mis-sold endowment mortgages, which can leave consumers with a massive short-fall they have to plug, cost them £1.9bn.

At least the banks are getting their comeuppance by having to dole out oodles in compensation, you might think, but it’s ultimately shareholders who feel the brunt of the claims. For instance the biggest offender Lloyds, which has had to set aside or pay out a whopping total of £14bn in redress, only paid out 0.5bn in dividends in 2010-14 (but still found £2.15bn to spend on bonuses). Second-placed Barclays spent £7.3bn in misconduct costs and £12.5bn on bonuses, but only paid out £3.8bn in divis.

It’s notable that much of the bad behaviour identified by New City Agenda continued to occur after the financial crisis, suggesting it didn’t exactly jolt them into cleaning up their act. The think tank’s founder Lord McFall thinks there are still big cultural problems.

‘Some banks have made improvements in that, but we hear from trade unions and those at the front line staff that there are still pressures on people to sell,’ he told the BBC’s Today programme this morning. ‘It was that corrosive approach that caused the issue of PPI and it's all too easy to come back.’

So what’s to be done? ‘Excluding the misconduct costs, the major retail banks would be robustly profitable...[which] makes it even more important for shareholders to engage and monitor the progress made by the banks in changing their cultures,’ New City Agenda said in a statement.

Culture is probably the culprit, but that’s not something that can be changed without serious and concerted effort. Don’t be surprised to see yet another costly scandal emerge in the years ahead.

The top 10 in full:

1. PPI mis-selling £37.3bn
2. Interest rate hedging products mis-selling £4.8bn
3. Endowment mortgages mis-selling £1.9bn
4. Consumer Credit Act breaches £1bn
5. Investment products and advice mis-selling £900m
6. Packaged bank account mis-selling £800m
7. Mortgages £700m
8. Pensions mis-selling £600m
9. Unfair unauthorised overdraft charges £600m
10. ID theft and card protection insurance mis-selling £500m
Other £3.6bn

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