UK banks pay out €297m to settle claims

UK banking giants are understood to have forked out an estimated £200m (€297m) so far this year on settling claims relating to “unfair” overdraft fee and interest charges, according to a recent report.

UK banking giants are understood to have forked out an estimated £200m (€297m) so far this year on settling claims relating to “unfair” overdraft fee and interest charges, according to a recent report.

Analysts at Credit Suisse have totted up the potential multi-million pound bill in a study on the sector, suggesting that banks such as Royal Bank of Scotland, Barclays and HSBC have each paid out millions since the start of the year alone.

The figure comes ahead of the “big five” interim results due out next week.

Credit Suisse forecasts that Barclays, the UK’s third largest bank by profits, could reveal that claims for penalty charges has set it back around £50m (€74m) since January.

Halifax parent group HBOS is also forecast to have taken a hit to the bottom line of around £50m (€74m), although it is not expected to include the figure in its reported earnings – a line that other banks may also take.

Jonathan Pierce, analyst at the group, said he doubted many banks would disclose fee liabilities and would likely follow HBOS’s lead in stripping out the figures from earnings.

HSBC is believed to be dragging down otherwise strong growth, as the bank has suffered amid the high-risk mortgage default crisis in America.

Stripping out the likes of HSBC, the domestic sector is set to post a 9% rise to around £14.6 billion.

The big five alone – HSBC, Royal Bank of Scotland, Barclays, HBOS and Lloyds TSB – are predicted to have raked in around £20.87 billion, up 8% on last year, or up 11% excluding HSBC – a sizeable leap even with the possible charges bill taken into account.

Fears over the possible impact of the charge claims were further eased last week when Barclays gave a preview of interim figures in documents relating to its planned takeover of Dutch rival ABN Amro.

The group has said that claims on charges dragged down net fees and commissions, which offset growth in net interest income in the first three months of the year.

Yet last week’s figures showed a better-than-expected 12% rise in pre-tax profits to £4.1 billion, suggesting the overall effect of penalty payouts has been minimal.

Banks have yet to disclose how much they make from unauthorised overdraft fees and interest charges, but they are believed to scoop some £4.7 billion a year from these penalties.

Using this estimation, even doubling the £200 million combined payout for a full year liability would still see banks make a possible £4.3 billion a year in fees.

And if this revenue stream was to be cut off completely, banks would simply recoup the cash lost from other areas, said Alex Potter, banks analyst at Collins Stewart.

He added: “Banks will look elsewhere to make the money that they used to make from charges and they will have to look at ending free banking, which could mean that those that don’t bounce cheques and go into unauthorised overdraft will have to start paying for their banking services.”

end 1 MONEY Overdraft Profits

BANKS PAY OUT #200m TO SETTLE CLAIMS

By Holly Williams, PA City Staff

UK banking giants are understood to have forked out an estimated £200 million so far this year on settling claims relating to “unfair” overdraft fee and interest charges, according to a recent report.

Analysts at Credit Suisse have totted up the potential multi-million pound bill in a study on the sector, suggesting that banks such as Royal Bank of Scotland, Barclays and HSBC have each paid out millions since the start of the year alone.

The figure comes ahead of the “big five” interim results due out next week.

Credit Suisse forecasts that Barclays, the UK’s third largest bank by profits, could reveal that claims for penalty charges has set it back around £50 million since January.

Halifax parent group HBOS is also forecast to have taken a hit to the bottom line of around £50 million, although it is not expected to include the figure in its reported earnings – a line that other banks may also take.

Jonathan Pierce, analyst at the group, said he doubted many banks would disclose fee liabilities and would likely follow HBOS’s lead in stripping out the figures from earnings.

HSBC is believed to be dragging down otherwise strong growth, as the bank has suffered amid the high-risk mortgage default crisis in America.

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