As if you needed any further proof that eveything's gone bonkers in banking... Accountants KMPG have crunched the numbers over at Barclays, HSBC, Lloyds Banking Group, RBS and Standard Chartered and found that despite huge increases in profit, a raft of internal errors, combined with fines and penalties from regulators, have taken earnings at the 'big five' from a core profit of £31.5bn to just £11.7bn, down 40% on the previous year.
Unsurprisingly, the recent PPI debacle has proved one of the most costly errors on the balance sheet: the banks paid out £7.4bn in 2012, up from £5.7bn in 2011.
In addition, there was the £4.7bn paid out in additional 'redress provisions' (translation: cash coughed up to cover other mis-sold plans or internal screw-ups), and a £12.8bn loss caused by the revaluation of ‘own debt’, reflecting the credit markets’ more positive view on bank issuers and interest rate movements.
But the KPMG’s 'Bank Performance Benchmarking Report' wasn't all bad news. It also found that impairment (bad loan) charges have continued to fall with continued low interest rates enabling the majority of customers to pay their mortgages and reduce their credit exposures (credit card bills, pay off loans etc).
Revenues too were generally up, helped by the recent surge in positive sentiment surrounding the future of the eurozone (although, as events in Cyprus are showing, that sentiment could prove short-lived).
'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,' says Bill Michael of KPMG.' But overall, banks have made progress. 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, he doesn't mince his words when it comes to consumers' plummeting confidence in the banks: '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.'
So, banks will remain under the cosh in 2013: PPI complaints are still flooding in, and the total cost for Libor rate-rigging is still yet to be counted. The major players are also going to have to fork out a lot of money on a major charm offensive if they are to win over cynical consumers and businesses, feeling ticked off and ripped off by the revelations of the past year. Still, at least the banks are still increasing their profits by significant margins. Now, they just need to hold on to them...