26th Apr 2016 14:47
LONDON (Alliance News) - Barclays PLC, HSBC Holdings PLC, Lloyds Banking Group PLC, and The Royal Bank of Scotland Group PLC, together the UK's four largest banking groups by market value, are nearing the end of the road for "mega" conduct and litigation charges, ratings agency Standard & Poor's said in Tuesday.
The quartet incurred GBP14.6 billion in conduct and litigation charges in 2015, according to Standard & Poor's calculations, bringing the total to GBP55.8 billion from 2011-2015. That was equivalent to 9% of their revenues in the five-year period. The ratings agency predicts additional charges of GBP19.5 billion over the coming two years, representing about 10.5% of their projected revenues.
"While we expect most of these provisions to be charged in 2016, we acknowledge that this cannot be a precise assumption given the difficulty in estimating timing of provisions. Therefore, some of these might carry over into 2017," Standard & Poor's said.
Standard & Poor's said it probably won't lower its credit ratings on UK banks as a "direct consequence" of conduct and litigation issues over the next two years. That's primarily because the major banks have worked to improve their capital buffers and underlying earnings strength, the ratings agency said, supported by a strong improvement in loan book performance, and a "relatively stable" UK economic environment.
"However, while conduct and litigation issues do not pose an immediate downside risk to ratings, higher-than-expected charges could limit ratings upside for some banks, if they constrain statutory profitability, earnings retention, and capital growth," the ratings agency said.
Restructuring charges in the five-year period amounted to GBP20.0 billion, Standard & Poor's said, amid efforts to simplify their business models.
The likes of Lloyds and RBS have sold international operations in favour of honing in on lending to customers and the UK. Last week, HSBC said the number of countries and territories will fall to 70, assuming the agreed sale of its Brazilian business completes later this year, from 87 in 2011. Barclays is winding down a non-core division that comprised USD110 billion of capital-intensive risky assets on its creation in May 2014, down to USD47 billion at the end of 2015.
All four banks are due to report first-quarter results over the next seven days, with Barclays due Wednesday this week and HSBC on Tuesday next week. Barclays shares were up 1.0%, HSBC up 2.%, Lloyds up 3.6%, and RBS up 1.7% on Tuesday afternoon.
By Samuel Agini; [email protected]; @samuelagini
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