Barclays, Royal Bank of Scotland and two other large British banks might be liable to pay damages of up to 5 billion pounds ($7.92 billion) for the wrong sale of derivatives to small companies, according to Bloomberg. The group of British banks, which also includes Lloyds Banking Group Plc and HSBC Holdings Plc have allocated about 740 million pounds to cover the damages, but, according to analysts, the total charge for the banking industry could be much higher. The Financial Services Authority, a financial judicial body incorporated in 1985, announced that it had found “serious irregularities” in the selling of financial products.
The new complaints against the British banks could turn into another costly scandal as the largest UK banks still have pay for other irregularities, such as improper selling of insurance related to personal loans. In this case, banks have allocated over 10 billion pounds to cover the claims.
Barclays could be forced to pay up to 2.5 billion pounds to compensate customers whom it sold the derivatives, considers Cormac Leech, an analyst at Liberum Capital Ltd. in London. HSBC and RBS could pay between £500 million and £1 billion and Lloyds £250 million to £500 million.
Chirantan Barua, an analyst at Bernstein Research sent a note to his clients stating that the impact “is hard to assess at this stage. We do not see any material enhancements to the provisions that the banks have already taken.”
Martin Wheatley, FSA managing director said: “The products that they sold were just absurdly complex.” According to FSA, the banks sold 28,000 such products since 2001. Wheatley added: “This review is firmly focused on the particular circumstances of each sale.”
The four British banks will complete a review in the next six months and should start compensate their customers, starting with the ones that struggle financially, according to FSA.
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