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, Reuters reported.
For firms such as Germany’s Deutsche Bank, Switzerland’s UBS and Britain’s Lloyds 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 miss-selling 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.”
Defending Own Turf
Deutsche Bank drew scathing criticism from shareholders on Thursday over its dramatic share price decline, costly legal wrangles and public squabbling among its directors.
Chairman Paul Achleitner defended his record and sought to head off criticism he was too slow to push for changes in top management and strategy at Germany’s biggest lender, which has seen its share price fall by half over the last year and posted a record $7.6 billion loss in 2015.
“I am sticking to my duty and to my responsibilities,” Achleitner told 5,400 shareholders at the annual meeting.
“I am standing here today and I would stand here again if my post were due for re-election,” said the 59-year-old Austrian, chairman since 2012.
Chief Executive John Cryan warned shareholders he expects further significant legal charges this year. Deutsche Bank has already set aside provisions of €5.4 billion ($6 billion) to settle pending litigation.
Claims filed by individuals, companies and regulators against Deutsche relate to miss-selling of subprime loans and manipulation of foreign exchange rates or gold and silver prices. Other lawsuits were over the rigging of borrowing benchmarks Libor and Euribor.
Deutsche was named on Wednesday as one of five major banks in a private US lawsuit alleging they conspired to rig prices worldwide in a more than $9 trillion market for bonds issued by government-linked organizations and agencies.
