UK Banks Lose 90% of 2012 Core Profits to Fines, Payouts - KPMG

Five major banks in the UK have lost most of their gains in 2012 core profits due to large fines and compensation payments during the year, according to a KPMG report.

The auditor's performance report on the banking majors in the country - Barclays, HSBC, Lloyds Banking Group, RBS and Standard Chartered - noted that the banks have generated combined core profits of £31.5bn ($48.0bn, €36.9bn) in 2012, a 45 percent rise.

The improved core performance was due to better credit performance or fewer bad loans and stronger results from investment banking divisions.

Taking into account fines, compensations and other charges due to changes in banking regulations, cumulative statutory profits have declined by 40 percent on year to £11.7bn.

"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," said Bill Michael of KPMG.

Meanwhile, the statutory results were hurt by the "cost of past mistakes and increased creditworthiness of their own debt," KPMG said. The banks recorded payment protection insurance costs of £7.4bn, redress provisions of £4.7bn, and a £12.8bn charge for losses caused by the revaluation of own debt.

They were in addition to more than £11bn of fines and penalties from regulators in connection with the Libor scandal, the mis-selling furore, and weak control of money laundering.

"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," Michael added.

KPMG noted that banks would have to reduce costs significantly and continue to generate strong returns in order to revive shareholders' trust in them, amid problems including job cuts and unusually high salaries to certain employees.

Earlier, there have been reports that Lloyds, bailed out by the taxpayer during the credit crunch, paid more than £1m to over 20 of its staff last year.