U.K. banks will struggle and face more “pain,” weighed down by conflicting demands from investors, customers, regulators and the government, according to KPMG LLP.
The total assets of British lenders have dropped 25 percent over five years to 5.2 trillion pounds ($8.63 trillion), while capital reserves have been boosted by 93 billion pounds, the London-based accounting firm said in a report today. Since 2008, the banks have faced about 28.5 billion pounds of costs for litigation, fines and customer compensation, it said.
“Most board members of U.K. banks have taken on their roles post crisis and are committed to making the changes required,” David Sayer, global head of banking at KPMG, said in the statement. “We must give bank management time to deliver, which will help restore the trust, viability and reputation of the banks.”
British banks, including Barclays Plc and Royal Bank of Scotland Group Plc, are still cutting jobs as they seek to control costs amid tougher regulation imposed to prevent a repeat of the financial crisis. Barclays, based in London, said in February it will eliminate as many as 12,000 jobs this year after fourth-quarter profit tumbled.
RBS is shrinking its investment bank as it seeks to revive earnings after 46 billion pounds of losses since its government bailout in 2008. The Edinburgh-based lender hasn’t said how many jobs will be lost. U.K. banks have also set aside at least 19 billion pounds in compensation for clients wrongly sold payment-protection insurance.
“Investors also need to be realistic,” KPMG’s Sayer said. “They must also readjust their expectations on returns as they are unlikely to achieve the heady pre-crisis levels.”
KPMG attributed the declining assets to banks’ reduced derivatives exposure, lending and trading strategies and lower appetite for risk. Since the 2008 credit crisis, global regulators have pushed financial-services firms to hold more capital relative to what they borrow to make investments.
“Some of the dark clouds which loomed over the U.K. banks in the first half of the year remain and have become darker,” KPMG said. “Banks continue to need more capital, margins continue to compress, returns on equity are still much lower than pre-crisis years and most importantly, costs, fines and penalties for customer redress and misconduct issues continue to dominate the agenda.”