More cuts likely in troubled banking sector

Further job losses in the banking sector are on the way, a report has warned, after the eurozone debt crisis, compensation costs and higher taxes slashed the combined profits of the UK’s five biggest banks.

Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered made combined pre-tax statutory profits of £19.4 billion in 2011, down 13 per cent on 2010, professional services firm KPMG said in its UK Banks: Performance Benchmarking Report.

The costs associated with the payment protection insurance mis-selling scandal – a combined £5.7bn – and the £1.3bn bank levy charge have held back bank’s financial performance, KPMG said.

The report also found that after aggressive cost-cutting and restructuring, including the offloading of non-core businesses, retail banking fared better than investment banking, where revenues declined sharply.

Bill Michael, UK head of financial services at KPMG, said: “It was a tougher year than many expected and banks will need to continue working hard to turn things around.

“I expect we will see continued cost-cutting which inevitably means further job losses, and business models will be reviewed again to ensure banks are concentrating on their core strengths and the markets with the greatest potential.”

The banks with larger exposure to Asian economies were the star performers, KPMG said, reinforcing the idea that the UK and Europe are becoming difficult places for banks to do business.

JAMIE GRIERSON