60% of banks profits vanish in fines and compensation
These costs relate to Payment Protection Insurance (PPI) and interest rate hedging products, which cost our banks £9.9bn last year.
The businesses have been repaying money to people who were sold PPI who hadn't had the whole thing explained to them or in some cases, didn't even want PPI but were hoodwinked into getting it. Nine banks have doled out £1.8bn to business customers after selling them deals on interest rates that they didn't understand and were costing more than regular loans.
A number of banks, including HSBC and Royal Bank of Scotland were all fined by UK and US regulators for trying to rig foreign exchange rates too.
Banks have a lot to worry about. Another thing they'll be concerned about is their return on equity, which is a profitability measure which shows how much dough they make for their investors. Basically, at the moment, it is below their cost of capital, and the cost of capital is what investors demand for the risk in investing in these dicky financial institutions.
However, things are looking up for the banks thanks to tighter regulations and a healthier capital base.