UK banks have set aside over £53 billion since 2000 to cover the costs of the ten biggest mis-selling and bad behaviour scandals, according to a new report from a think tank.
New City Agenda says Payment Protection Insurance (PPI) is by far the most costly scandal, with £37.3 billion set aside over the last 15 years to cover compensation and fines related to the mis-sold insurance. The think tank puts this in perspective by saying that the £37.3 billion figure is four times the total cost of staging the London 2012 Olympics.
The think tank says:
Banks have proved hopeless at estimating the total cost of their misconduct — with some increasing their PPI redress provisions 10 times over the past 3 years. Legitimate complaints have been rejected and banks have delayed writing to customers, meaning that the scandal has taken years to be resolved and cost billions in administrative costs.
PPI was widely mis-sold to consumers unable to claim on it or who did not even realise they had bought it. Between 1996 and 2012 banks sold over £44 billion of PPI, according to New City Agenda.
Lloyds tops the league table for payouts and provisions for all bank scandals looked at, setting aside £14 billion between 2000-2014.
New City Agenda, which was founded by Tory MP David Davis and two Lords, is calling on shareholders to put more pressure on banks to change the culture among staff and rein in bonuses, which it argues is a root cause of the persistent scandals and fines.
New City Agenda says: “The scandals covered a wide range of products and practice. But key root causes of these issues include poor quality products, inappropriate staff bonus schemes and an aggressive sales-based culture.”
The think tank says that profitability at the big banks has effectively been wiped out by scandals, saying: “Excluding the misconduct costs, the major retail banks would be robustly profitable.”
Barclays new CEO Jes Staley admitted as much in a memo sent to staff last month that was obtained by Business Insider, writing that the bank must “recognise that the billions of pounds that we have paid out in regulatory fines, have reduced our earnings to almost zero in the period 2012-2015. We have not been able to retain a single pound of our earnings in that time.”
Staley has made changing company culture a key part of his mission since taking the role in October. He said in a memo to staff in March obtained by Business Insider:
Barclays cannot succeed or prosper unless the societies and communities in which we live and work also succeed and prosper. I want Barclays to be a bank where our employees choose to work because they believe in the institution, its values, its passion for diversity and inclusion, and its intrinsically valuable role in society.
Barclays staff will soon be asked to name their best friend within the bank as part of a drive to encourage friendship and community at the company.
New City Agenda says it was “founded in response to the lack of new ideas and challenging perspectives emerging from current analyses of the issues facing the industry, government and consumers.”