UK's four major banks face further £19bn in litigation charges, S&P reveals

LONDON (ShareCast) - The UK's four largest banks are expected to have £19bn more of litigation costs this year and next, said credit agency Standard & Poors, which said the quartet's credit ratings were safe for now. Although the credit agency said it thought the worst period for charges relating to payment protection provisions has now passed, it believes conduct and litigation charges are now "a way of life" for the UK banking industry, and that some form of charge "seems probable every year for the larger banks and every other year for the smaller institutions". Barclays (Swiss: BARC.SW - news) , HSBC , Lloyds Banking Group , and Royal Bank of Scotland (LSE: RBS.L - news) have paid £42bn in litigation charges in the five years leading up to 2014, according to S&P This is equivalent to 7.5% of their revenues over the period, and is 88% of the industry-wide total of £48bn in charges faced by 13 UK banks and building societies.

S&P credit analyst Nigel Greenwood said that the ratings agency will not downgrade the banks as there is likely to be a sufficient buffer in the banks' ability to absorb charges and costs, helped by an improved UK economic environment.

The UK recovery is predicted to result in low credit loan losses persisting, and that the early fruits of the banks' restructuring will start to benefit returns.

The conduct and litigation charges relate to the three main categories: payment protection insurance (PPI), interest rate hedging products (IRHP) and other customer litigation charges.

S&P thinks the litigation charges are most likely to be part of banking expenses as regulations favour customers over banks.