6bn hit to profits from fines

Royal Bank of Scotland faces a 6bn hit to its profits over the coming years as it continues to set aside huge sums for fines and compensation, according to a leading investment bank.

Analysts at JP Morgan predicted that the taxpayer owned lender faces the biggest remaining bill for misconduct of the major UK banks, more than six years after its 45bn bail out.

In total, RBS, Barclays, HSBC and adidas originals Lloyds face 15.1bn worth of provisions for expected foreign exchange fines, PPI payouts and penalties related to US mortgages in the next two years, JP Morgan said.

The bank Raul Sinha raised his provision forecasts by 2.8bn on Monday, after saying RBS and Barclays would have to put aside more than previously thought.

When including the 11.5bn of unused provisions the banks already have on their balance sheets, this suggests 26.7bn worth of remaining fines and redress for the banks.

RBS is facing a fine of billions of pounds for selling mortgage backed securities in the US in the run up to the financial crisis.

The bank, 79pc owned by the taxpayer, was dealt a blow in the US Supreme Court on Monday, when an appeal from RBS and three other banks seeking to derail lawsuits from the Federal Housing Finance Agency over the toxic loans was unsuccessful.

The banks had argued that the FHFA had missed a deadline for filing the case.

JP Morgan said RBS will have to take an extra 3.1bn worth of provisions over the case. Although it is unclear when any fine will come, it is expected as soon as the first quarter of this year.

If a large proportion of these provisions are taken when the bank releases annual results for 2014 in February, it could wipe out much of its annual profit expected to be the first since its bail out in 2008.

The fines could also eat into bonuses, following pressure from the City watchdog.

JP Morgan said the industry’s total bill for PPI mis selling will rise above 25bn in the coming years, with Lloyds continuing to bear the biggest cost.