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Little sign of end to banking crisis
4:22pm Wednesday 12th September 2012 in Business
THIS month will represent the fifth anniversary of the beginning of the UK banking crisis and the nationalisation of Northern Rock.
At the time, Gordon Brown’s government had little choice but to take large stakes in two of the UK’s weakest banks at the end of Labour’s third term in office.
While this managed to prevent a total banking collapse, with half a decade having elapsed, the banking crisis shows little sign of coming to an end.
During the past five years, UK banks have gone from one crisis to another.
At times, this has caused the share prices of UKfocused banks to fall faster than Paralympian Oscar Pistorius could run on extralong blades.
This includes high street names – Barclays, Lloyds and RBS, the latter of which has seen its share price fall by nearly 95 per cent.
While the UK-listed international banks – HSBC and Standard Chartered – have fared far better, they have also experienced some problems.
For instance, HSBC was recently fined nearly £0.5bn in the US, relating to antimoney laundering infringements.
A similar situation arose last month for Standard Chartered, with the company being accused by US regulators of helping Iran’s government hide more than $250bn (£160bn) in illegal transactions between 2001 and 2007.
While Standard Chartered has admitted discrepancies in its anti-money laundering procedures, the sums the company believed this may have affected was in the millions rather than the billions.
However, having seen £11bn wiped off the value of Standard Chartered following the accusation, an agreement was reached with the New York Financial Services.
Standard Chartered was fined $340m (£216.9m) which the company deemed necessary to save its US banking licence.
The original crisis began following the discovery that US sub-prime mortgagebacked securities were worth less than a holding in Facebook.
Since then, we have had European debt issues, PPI (payment protection insurance) claims and Libor fixing scandals. It kind of leaves you wondering what will be next for this muchunloved sector.
While banks are struggling to increase their capital base with one hand, they are paying out vast sums of money with the other.
Politically, the sector is untouchable. No politician wants to be seen to support the banks at a time when the public still lays the full blame of the recession on the “greedy banker” and a bonus structure that is still hotly debated.
So where does this leave investors? With the UK economy looking a few years away from a sustained recovery and with banks still struggling to reduce their businesses, it does not look particularly good for shareholder returns.
Of the UK-focused banks, only Barclays is currently paying a dividend.
It also seems as if it will only be a matter of time before the banks will be hit again with further compensation claims or another one-off tax charge.
Until global sentiment changes, the banks are unlikely to repay shareholders for the risks of investing in them.
The best returns in the sector now seem to be through a successful PPI claim.
With average PPI claims running at about £2,750 each, the £11bn currently being paid out to banking customers is providing a much-needed boost to many households.
If you believe the banks were originally at fault for the crash, you could see this as well-deserved karma.