Year of fines hide banks’ core profits

 
Ben Southwood
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STRONG underlying profits across the banking sector were wiped out by an unprecedented year of accounting adjustments and fines, figures showed this morning.

Banks’ core profits before tax jumped 45 per cent between 2011 and 2012, KPMG numbers revealed, rising to £31.5bn.

But £4.7bn of regulatory fines, £7.4bn of restitution for payment protection insurance (PPI) mis-selling, and £12.8bn of accounting changes from their cheaper debt ate into the big five banks’ – Barclays, Lloyds, HSBC, RBS and Standard Chartered – statutory profits, to bring them down 40 per cent to £11.7bn, KPMG said.

“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 at KPMG.

Though there has already been a bloodbath in bank jobs, KPMG said banks would still be attempting to rein in costs, since “the era of high margins and high returns is over”.

To convince shareholders to invest in them, the big five would need to reduce headcounts and bonuses and focus on core activities, the accounting giant said.