UK banks rally but misconduct fines still hang over the sector
Shares in high-street banks Barclays (BARC), Lloyds (LLOY), Royal Bank of Scotland (RBS) and Virgin Money (VMUK) rocketed on 13 December after the landslide Conservative victory in the general election.
The banks were in demand amid expectations of higher bond yields due to Tory promises of higher public spending.
Higher bond yields are seen as necessary for banks to increase their net interest margin – the difference between what they charge on loans and pay for deposits – and therefore their profits.
With the election out of the way and the Government free to pursue its strategy on Brexit, hopes are that businesses will unleash a wave of pent-up investment and consumers will respond with an increase in spending in the months ahead, which should be good for bank lending.
However the banks are still not out of the woods as regards fines for misconduct. After years of penalties for mis-sold payment protection insurance (PPI) and for rigging the London inter-bank offered rate (LIBOR), two UK banks are in the firing line for rigging the currency markets.
Two US law firms have launched billion-dollar class action suits in London against a group of banks for rigging the foreign exchange markets between 2007 and 2013. The banks, including Barclays and RBS, have admitted illegally setting foreign exchange rates between themselves and have already been fined over €1bn by the European Commission.
The US claims have been brought on an ‘opt-out’ basis which means that all those affected by the banks’ actions can be automatically included in the class action case.
Meanwhile HSBC (HSBA), which isn’t included in the class action for currency rigging, faces a different but equally thorny problem. It has been ordered to pay $192m to the US Department of Justice (DoJ) to resolve an investigation into its role in helping wealthy American citizens evade taxes using undeclared Swiss bank accounts.
HSBC Private Bank in Switzerland has been charged with ‘conspiracy to defraud the US’ between 2000 and 2010 by helping US clients hide some of their assets and income offshore.
The DoJ claims that HSBC bankers travelled to the US specifically to ‘scout for clients’. Swiss lenders Credit Suisse and UBS have already paid out billions of dollars for similar activities and the whole of the Swiss private banking sector has had to undertake a major ‘house-keeping’ exercise in the wake of the DoJ investigation.