It is always the banks isn’t it?

Perhaps the most regular theme of the credit crunch era is the problems of the banks and the finance sector. This is quite an (anti ) achievement as we note that if we count from problems at Bear Sterns the credit crunch is now into its second decade. In only a couple of months or so it will be ten years since Northern Rock began its collapse. We are regularly told by our establishment that there has been reform and repair along the lines of this from Alex Brazier of the Bank of England that I analysed only on Tuesday,

The financial system has been made safer, simpler and fairer.

Banks, in particular, are much stronger. British banks have a capital base – their own shareholders’ money – that is more than 3 times stronger than it was ten years ago.

They can absorb losses now that would have completely wiped them out ten years ago.

Lloyds Banking Group

I pointed out on Tuesday that it was hard to know whether to laugh or cry at the “simpler and fairer” claim and this morning there is this announcement to consider.

This was after taking additional provisions for PPI and other conduct related issues which was disappointing. The Group is also currently undertaking a review of the HBOS Reading fraud and is in the process of paying compensation to the victims of the fraud for economic losses, ex-gratia payments and awards for distress and inconvenience.

Later we got some details on the monetary amounts involved.

The £1,050 million charge for PPI includes an additional £700 million provision taken in the second quarter reflecting current claim levels, which remain above the Group’s previous provision assumption. The additional provision will now cover reactive claims of around 9,000 per week through to the end of August 2019,

The good news from this is that the UK economy will get another £700 million of PPI style Quantitative Easing which seems to be much more effective than the Bank of England version.  The bad news is that the saga goes on and on and on in spite of us being told so many times that it is now over. Indeed the rate of provision has doubled from last time around. This means that in total Lloyds either has or is about to provide this in terms of PPI style QE. From Stephen Morris of Bloomberg News.

Lloyds Bank takes ANOTHER £700m in charges today, taking their total since 2011 to 18.1 BILLION POUNDS………This is the 17th time the bank has increased its provisions for the scandal.

This is a feature of the ongoing banking scandal where we are drip fed the news as a type of expectations management as another bit is announced and we are told it is the last time again and again. The issues are legacy ones from the past but the management and response cycle has not changed. Actually if we look at the total numbers for misconduct New City Agenda has some chilling ones.

has now set aside £22.5 bn for misconduct since 2010

If we go wider to the whole industry it calculates this.

Total amounts set aside for PPI redress now stand at £42.1 billion – around 4.5 times the cost of the London 2012 Olympics. 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.

If we return to the QE style impact it does make me wonder how much of the UK economic recovery has been due to this as we note for example its possible contribution to car sales. If we throw in every type of miss selling the total comes to £58.1 billion.

Before we move on there was also this. From the Financial Times.

The bank has also set up a £300m compensation scheme to repay 600,000 mortgage customers as a result of failings in its arrears policies between 2009 and 2016,

How can there be recent failings when everything is supposed to have been reformed?


On Tuesday Alex Brazier warned about looser lending standards. But according to Lloyds Bank in the Financial Times it is everybody else.


Mr Horta-Osório said the bank has been increasing its consumer lending — comprising credit cards, personal loans and car finance — at less than 4 per cent a year over the past six years, and remains under-represented in the sector versus its size.

I am very cautious about anyone who uses this sort of swerve “over the past 6 years” as no doubt 2011 and 12 are included ( remember the triple dip fears?) to get the number down. Still the Alex Brazier should be alert to that as it is exactly the sort of swerve the Bank of England uses itself.

Royal Bank of Scotland

We cannot look at UK banks and miss out RBS can we?! It did make BBC News earlier this month.

Royal Bank of Scotland has agreed a £3.65bn ($4.75bn) settlement for its role in the sale of risky mortgage products in the US before the financial crisis.

Also there is the on-going saga about the on and now off sale of Williams and Glyns. If I recall correctly around £1.8 billion was spent on this and the bill is rising yet again.From the BBC.

The European Commission has accepted a UK government plan to free Royal Bank of Scotland from an obligation to sell its Williams & Glyn division……..Under the new deal, which the EU has accepted “in principle”, RBS would spend £835m to help boost competition.

Deutsche Bank

My old employer has seen plenty of scares in the credit crunch era. For the moment it seems to mostly be in the news via its likes to both the Donald and his circle. From the New York Times.

During the presidential campaign, Donald J. Trump pointed to his relationship with Deutsche Bank to counter reports that big banks were skeptical of doing business with him.

After a string of bankruptcies in his casino and hotel businesses in the 1990s, Mr. Trump became somewhat of an outsider on Wall Street, leaving the giant German bank among the few major financial institutions willing to lend him money.

Well as this from the Wall Street Journal points out today’s results have brought both good and bad news.

The German lender said Thursday net income was €466 million ($548 million), compared with €20 million for the same period a year earlier. Deutsche Bank’s companywide revenues declined 10% from the year-ago period, to €6.6 billion.


There is much here that seems familiar as the claimed new dawn looks yet again rather like the old one. There has been a reminder of this from another route today as the establishment reform agenda has led to this.

FCA say Li(e)bor is to end in 2021 citing that the bank benchmark is untenable  ( @Ransquawk)

Good job there is no rush to do this like a big scandal destroying any credibility it had or something like that.  We need a modern benchmark for new trades starting now whilst a sort of legacy Libor is kept for the existing contracts that cannot be changed.

Still there is always an alternative perspective on it all as this headline from Reuters indicates.

Lloyds bank posts biggest half-year profit since 2009





27 thoughts on “It is always the banks isn’t it?

  1. Hi Shaun

    Great article as always.

    I can actually remember being mislead on PPI. I remember trying to get a loan for a car in the nineties, and they wouldn’t give me the loan unless I signed up for the insurance. Very annoying at the time.

    But unfortunately I am outside the timetable, so I never claimed.

    It did teach me a valuable lesson about never getting a loan again.


    • When i was 17 just after i left school with a solitary GCSE in Maths i got a loan of a few hundred pounds and it was implied i needed to take out PPI to get the loan.

      I saw the figures and my GCSE in maths kicked in and i thought he’s a robbin barsteward but went along with him to get the loan then the day later cancelled the PPI.

      But even at 17 and hardly overly financially savvy i knew exactly what it was so i can’t see how people can claim to have been missold.

  2. Always good to read your latest take on whats happening and cutting through all the spin!

    The banks here are in a mess and there is more compensation and fines to come from their pass misdemeanour in this country and from US. To PPI,we need to add mortgages, hedges, car loans treatment of SMEs (RBS’s Global Restructuring) etc, etc. Every year they drip feed the bad news, knowing that there is worse to come, but they dare not acknowledge it. The B of E and politicians are also aware of the likely scale of the problem, but are frightened to say anything.

    To say the banks are stronger and can weather any new crisis, is a joke, unfortunately, a sick one.

    • Yep when they’re lending financially savvy economy growing entrepreneurs also known as leveraged landlords £300k for crap terraced houses 100 mile from London that were sold for £170k only 3.5 years ago (approx 8 times average local salary) just prior to FFL and HTB taking off big time you know something insane is happening.

      Just seen such a place would post a link to it but i’m fearful someone with a PPI windfall might see it as a good deal and buy it with an interest only mortgage and then in 25 years time find out interest only means you’ve only paid the interest.

      • To be fair Arthur,the craziness is yet to end.I was another site where they regularly monitor auction sales and some of the prices being paid in Wales and the North East for properties is 50% off what was paid in 2007/8.

        The reality is that there are plenty more losses to come when the govt finally stops using taxpayers money to subsidize bank balance sheets via ZIRP,QE,HTB1+2,FLS etc etc.

        • Edit to add,if London ever has to rely on locals to buy it housing stock at 4.5 times household income,then the fall will be epic.

    • Lead us, Central Bankers, lead us

      Up the future’s endless stair:
      Chop us, change us, prod us, weed us.
      For stagnation is despair:
      Groping, guessing, yet progressing,
      Lead us nobody knows where.

      Wrong or justice in the present,
      Joy or sorrow, what are they
      While there’s always jam to-morrow,
      While we tread the onward way?
      Never knowing where we’re going,
      We can never go astray.

      “It’s jam every other day: to-day isn’t any other day, you know.”, said the Queen.
      “I don’t understand you,” said Alice. “It’s dreadfully confusing!”

      (Acknowledging Hymn to Evolution by C S Lewis, and Lewis Carroll.)

  3. Banks are important; in some areas (payments for example) they are akin to utilities and are vital for life as we know it.

    That they can indulge in the sort of egregious behavior that we have seen in recent years really shows far more than failures within the individual institution. It shows that the whole system of supervision and regulation is very seriously wanting but has no inclination for meaningful reform; the comment by the BOE that the capital buffers are now much higher than a few years ago is the sort of “in your face” excuse that convinces no one who has studied the issue for more than five minutes. And that we have reached a position where banks regularly report provisions for previous misconduct and that fines and associated legal costs are now simply an item of cost in the P & L just shows how far they have descended morally.

    The irony is that they still appear to be unable to recognise boundaries in conduct and taken to its logical end will require them to be rescued once again but I can’t see them emerging from such a process without the sort of reform that is now considered unacceptable (Glass Steagall; much higher capital buffers; restrictions on derivative trading). The regulators clearly cannot get to grips with this issue and it appears that it will take another bust to get us anywhere where we need to be in terms of a sensible structure for the banking industry.

    • You will never ever succeed in controlling banks unless you stop their balance sheets being used for casino sorry securities activities. As you say, Glass Steagall come back all is forgiven

    • ‘The regulators clearly cannot get to grips with this issue and it appears that it will take another bust to get us anywhere where we need to be in terms of a sensible structure for the banking industry.’

      Spot on Bob.Strange really.They bring in Glass Steagall to stop a repitition of 1929 happening,then they repeal and we get a repeat of 1929 (obviously,most people are still in the Depression despite the GDP figures)

      • Dutch

        I have often posted that the GDP fuggle , sorry figures, are approx 2% greater than reported

        ie 2% GDP is actually 0% , and so on

        when you correct the metric it seems to account for what people actually see


  4. Very good blog as usual, Shaun.
    I am going to say something very unpopular. I don’t believe that there was a cost to the consumer of anything like £45 billion. I think that there is an industry out there making massive profits out of claims which they know will be paid given the banks’ reputations. I have had repeated calls, letters and emails from companies asking me to appoint them to get me the “compensation I Deserve”. they demand 30% of the redress as fees.
    I’m sorry and will not doubt be excoriated for this heresy but I feel that much of it falls into the whiplash and now holiday illness category. I do not work for a bank and have no interest financially either way.

    • I’d call it collusion with HMG to drop helicopter money into the economy by the back door

      the payback being the Banks don’t get the regulation they deserve.

      It does feel like the Banks are really in control sometimes…….

      time for more popcorn


  5. I’d just like to point out that just because banks balance sheets are three times stronger than 2007 it doesn’t mean they’re in good health.

    Firstly,the banks in 2007 were running at extremely high levels of leverage.So saying they’re three times stronger is a little misleading to say the least.

    Secondly,many,including RBS,haven’t fully cleaned the stable of bad loans otherwise we wouldn’t be having yoy losses.

    Thirdly,any fractional reserve banking system where leverage can be built upon the equity achieved by previous leverage has got to be a disaster in waiting.If we went back to cash reserve lending and said it’s limited to 20:1,then that’s it.When you can take an asset,like a house,mark it to model,and create on the back of it (despite any price action in the market place indicating that’s unwise),the degree of leverage is actually unmeasurable.

    Fourthly,a lot of this credit creation over the last ten years has been on the back of some generous treatment by the taxpayer.How much of retained earnings has actually been earned lending to non zombie businesses sustained by ZIRP or a 6% fiscal deficit.

    Fifthly,should the housing market turn,and it will,then we’ll see a lot of these banks taking losses that weren’t built into their models and that are outside the stress tests by the BoE because they’re based on rising interest rates not a drop in demand.Given the prevalence of property loans on the books of most banks,I think it’s safe to say we’re not out of the woods yet.

    • aye the Banks are still bust

      you can tell by us having 0.25% IR – below the “emergency ” level …..



    • Yes their capital reserves were circ 2-3%? and are now 6-10%? so a fall of just 10% would wipe them out, aren’t you feeling relieved at knowing that now?

      What a farce.

      Imagine the losses if interest rates HAD to go up, in other words Carney had his hand forced, and the credit card debt went bad,add in the car loans, and that 10% wouldn’t last very long would it?

      • The higher the capital reserve ratio the less lending will take place and the more the economy will suffer. It’s a balancing act – exactly how far would you go with the reserve requirement given that the current 6-10% has resulted in >2% annual GDP growth?

  6. Of course the Banks ares still bust – so much for stress tests and auditors
    -why do you think interests rates are so low. – the banks could not deal with the defaults on mortgages and reduced asset values. Shame the politicans dont have the brains to deal with the problem

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