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Legal costs burn one-third of Europe bank profits since '08: ECB
May 24, 2016 / 8:21 AM / a year ago

Legal costs burn one-third of Europe bank profits since '08: ECB

The Canary Wharf financial district is seen in east London November 12, 2014. REUTERS/Suzanne Plunkett

FRANKFURT (Reuters) - European banks have spent a third of their net profits on provisions to cover expected legal costs since the start of the economic crisis in 2008, European Central Bank data showed on Monday.

Between 2008 and 2015, European banks have set aside $160 billion in provisions for legal costs, equal to almost half of their net income over that period.

This means their profits could have been almost one-third higher were it not for these legal costs.

For firms such as Germany’s Deutsche Bank (DBKGn.DE), Switzerland’s UBS (UBSG.S) and Britain’s Lloyds (LLOY.L) provisions by far outstripped net profits over the period.

The ECB added this trend may continue, with banks provisioning for another $50 billion worth of legal costs as of the end of 2015.

Almost half of that sum was put aside by British banks, in particular for settling costs associated with the misselling of payment protection insurance.

“Despite the large number of conducted cases and settlements to date, the expected costs of past misconduct remain substantial,” the ECB said in the study, part of its Financial Stability Review due to be published on Tuesday.

“This may suggest further pressures on banks’ profitability and internal capital-accumulation capacity.”

Reporting By Francesco Canepa; Editing by Toby Chopra

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