The biggest publicly traded companies in the UK had to set aside a record amount to settle legal costs in 2013, as banks in particular saw regulatory fines and litigation damp their profits in the wake of lingering scandals.
Provisions for legal costs among the FTSE 100 rose to £24.6bn in 2013 from £22.1bn a year earlier, which represents a 12 per cent rise, according to new analysis.
The rise was spurred by the banking industry, whose legal costs alone totalled £9.2bn, or 37 per cent of the overall total, according to Thomson Reuters, which compiled the annual research. Banks’ legal costs soared by 44 per cent in 2013 as fines from global authorities in the Libor probe hit, and after they had to set aside money to settle claims that they had mis-sold interest-rate hedging products.
RBS sparked concerns over its capital position last week when it said it would have to put aside an extra £3bn to cover legal costs, while Barclays said that it would take an extra £330m charge that would eat into its fourth-quarter profits.
They are not alone. Some of the world’s biggest banks have been hit by burgeoning legal costs. Deutsche Bank two weeks ago announced deep quarterly losses following higher legal provisions, while JPMorgan Chase and UBS have faced similar problems.
The banks’ higher legal provisions come in the wake of increased litigation– RBS, for instance is facing a shareholder lawsuit over representations it made ahead of its 2008 cash call – and also record levels of fines levied by financial regulators around the world that are working together on scandals such as Libor-rigging.
“The list of major multinationals whose legal liabilities have reached such a scale that they have to sell assets or raise new capital is still growing,” said Raichel Hopkinson at Thomson Reuters, adding that legal risk had gone “from being a minor annoyance to a threat to balance sheets”.
While banks saw the biggest rise among sectors within the FTSE 100 over 2013, the oil and gas sector remains the biggest constituent of legal costs, with £9.9bn of the overall total.
BP suffered a setback in January when a US federal appeals court upheld a compensation agreement over the 2010 Deepwater Horizon disaster. The decision is a blow to BP’s hopes of curbing compensation payments under the settlement, which are on course to run far ahead of the $7.8bn that the company originally estimated. The case could ultimately be decided by the US Supreme Court.
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