UK Banks: the worst is yet to come

| October 10, 2008 | 0 Comments
UK Banks: the worst is yet to come

UK banks such as RBS, HBOS, Barclays and Lloyds have had it bad - share prices have plunged wiping billions from their company values, and commercial markets have frozen up leaving them in need of government help to remain afloat.

During the drama of the financial crisis, everyone seems to have forgotten about the ongoing case relating to unfair bank charges.

While a final resolution isn’t expected until later next year, we are expected to see the second round of this issue continue within a few weeks.

And until it does, banks are unable to chase the same level of debt charges, potentially depriving them of up to £3.5 billion in income across the eight major lenders being taken to court.

However, in the event of the case going against the banks - if the charges are ruled as unfair - then banks will be expected to pay out billions in back-dated charges.

Of course, the current depression to income from charges is already hurting the banks, but in the event of a final ruling against them, it’s going to hurt a whole lot more.

The irony is, with the part-privatisation of banks in play after Gordon Brown’s bail-out package, it could end up as the tax payer who ends up footing any final bill.

Whichever way the final judgement goes, it is likely to be a pyrrhic victory.

On the one hand, if consumers win, banks already brought to their knees by commercial forces will be further crippled by consumer rights.

However, if banks were to win, debt charges to be reinstated would occur at a time when consumers are likely to most default on debt anyway - in fact, charges could even hasten defaults on mortgages, loans, and credit card debt - causing even more problems for banks by saddling them with worthless debt.

The fight between consumer and banks over charges started out as a crusade of the poor against the rich - but like so many similar crusades before them, the danger is, there may be little accomplished to cheer about at the end.

Least of all from the banks.

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