Doubts over future profitability at UK banks, says KPMG report
By Daniel Hunter
KPMG’s UK Banks: Performance Benchmarking Report highlights how profitability at the UK’s largest banks has suffered at the hands of the Eurozone crisis and the significant costs associated with PPI, the bank levy and regulatory requirements.
The overall cost of Payment Protection Insurance (PPI) and other redress payments totalled £5.7bn and the total bank levy charge was £1.3bn.
The big five banks — Barclays, HSBC, Lloyds Banking Group, RBS and Standard Chartered — made combined pre-tax statutory profits of £19.4 billion in 2011, down £2.9 billion on profits reported in 2011.
Following a year of aggressive cost cutting and restructuring, including the offloading of non-core businesses, retail banking fared better than investment banking where revenues declined sharply compared with last year.
“It was a tougher year than many expected and banks will need to continue working hard to turn things around," Bill Michael, UK head of financial services at KPMG, commented.
"I expect we will see continued cost costing — which inevitably means further job losses — and business models will be reviewed again to ensure banks are concentrating on their core strengths and the markets with the greatest potential.
“The banks with larger exposures to Asian economies were the star performers, which reinforces how the UK and Europe are becoming relatively difficult places for banks to do business. HSBC, which has 49% of its business based in Asia and Latin America, and Standard Chartered, with 80% of its business in Asia and the Middle East, outperformed the more UK and US focused banks. As the amount of capital and liquidity required to write business in the UK becomes higher than in other jurisdictions, it is increasingly difficult for banks without an international focus to achieve the return on equity expected by investors.
“The UK bank levy... continued on page two >