Should You Avoid Barclays PLC And Royal Bank of Scotland Group plc As They Face Yet More Fines?

Barclays (LSE: BARC) (NYSE: BCS.US) is once again in the cross-hairs of regulators today. It has been revealed today that regulators have fined the bank £38m for failing to segregate client assets. The fine, to be announced by the Financial Conduct Authority, is the largest fine for such an offence, highlighting how regulators are now trying to make an example of those banks breaking the rules. 

Unfortunately, today’s fine is the second punishment Barclays has received for breaches of client asset rules, whereby the bank has failed to separate client and corporate assets belonging to the bank. 

More to come Barclays

Nevertheless, a fine of £38m is nothing compared to the amount City analysts believe that Barclays will have to pay out over the long-term. Indeed, some analysts have estimated that Barclays’ total legal bill over the next few years will be around £7bn, a lofty figure. 

It’s estimated that around £1.2bn of this legal bill will fall during the second half of this year, as the bank pays costs and fines associated with its “dark pool” trading platform debacle. Included in this £1.2bn legal bill will be a £300m charge to compensate customers who were mis-sold products by the bank to help them hedge interest rates. 

RBSNot alone 

Barclays is not the only bank facing new charges due to mistakes made in the past. Royal Bank of Scotland Group plc (LSE: RBS) has recently been fined £15m by the FCA after the bank was found to have given inappropriate mortgage advice to customers.

Even though RBS is 81% owned by the UK taxpayer, the bank has not been able to escape the jaws of regulators, who earlier this year fined the bank, along with peer Lloyds, £390m for its part in the LIBOR rate fixing scandal. Lloyds was fined £218m for its part. 

Time to sell up?

As these fines roll in, is it time to sell up? Well, the most concerning factor about these fines is that they’re eating into capital buffers Barclays and RBS have been trying hard to build up over the past few years.

What’s more, as respected fund manager Neil Woodford highlighted earlier this year, when he sold his HSBC holding, the continual stream of fines being given to banks, for mistakes made in the run-up to the financial crisis will hamper their ability to grow, maintain, or instigate a dividend payouts. 

And aside from the fines, RBS and Barclays have many other problems, all of which imply that the banks are going to take time to return to health. RBS for example is not expected to return to health for another five years, with management warning this year that there is still a significant amount of work to be done. 

Meanwhile, Barclays’ investment banking division, which provides around 50% of group pre-tax profit, is in turmoil and the division’s future is uncertain. 

Only you can decide

Nevertheless, only you can decide if Barclays and RBS fit into your portfolio and I strongly recommend that you do your own research before making any trading decision. 

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