Britain’s four largest banks face more than £9bn of losses as a result of pending legal actions, according to analysts at Credit Suisse.Royal Bank of Scotland has the largest unfunded bill of £3.5bn, largely as a result of the cost of compensating customers who were mis-sold financial products and the potential size of a settlement over its involvement in the sale of sub-prime US mortgages.
Credit Suisse estimates that the combined losses of UK banks that are not already covered by explicit provisions is £9.2bn, or 60pc of the total facing Europe’s largest lenders.
In the case of RBS, its total provision against the litigation costs identified by the Credit Suisse analysts is just £600m compared with a figure of £2bn set aside by Barclays.
The analysts warned that even these large costs could be an underestimate of the bill . “We are only looking at issues that are known at present – there are likely to be issues in future that we are not aware of at this stage, but we have not tried to take these into account,” said Credit Suisse.
Mis-selling provisions have become one of the largest costs to the industry, with the bill for payment protection insurance compensation expected to exceed £12bn and redress for businesses mis-sold interest-rate hedging products already reaching more than £1bn and expected to at least double.
One of the biggest as yet unquantified costs for banks could come from the legal cases related to Libor-rigging, with Barclays and RBS already settling with the US and British authorities over their involvement in the scandal.
Banks are also facing legal action from their own investors over capital-raisings during the financial crisis, amid allegations that some lenders misrepresented their financial position to investors. RBS declined to comment.