UK banks’ £14.6bn legal costs account for over half of FTSE 100 litigation liabilities

UK banks’ £14.6bn legal costs account for over half of FTSE 100 litigation liabilities

In the post-Lehman landscape, banking and litigation have become common bedfellows, and research published by Thomson Reuters this week shows that the UK’s four biggest banks’ litigation and regulatory provisions make up over half of the FTSE 100’s litigation costs.

The research showed that overall the FTSE 100 set aside £26.2bn during 2016 to tackle litigation and regulatory investigation expenses (including fines), with £14.6bn of that figure being spent exclusively by the four biggest banks in the UK: Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland (RBS). However this is down on 2015, when FTSE 100 litigation provisions hit a record £31.1bn, with money set aside by banks also hitting a record £17.3bn.

Nick Rowles-Davies, founder and chief executive of litigation funder Chancery Capital, told Legal Business: ‘The figures do not surprise me. Banks have been making provisions for ages due to securities and regulatory investigations, as well as various banking claims. The general slowdown of the global economy also doesn’t help – litigation always increases in those times.’

Despite the research claiming that ‘litigation funders are on the march’, Rowles-Davies downplayed the contribution they have made to the statistics, but noted that funders had made cases against big banks more viable.

Damien Byrne Hill, a banking litigation partner at Herbert Smith Freehills (HSF) added: ‘Litigation against banks seems to be continuing rather than rising. There’s still quite a few cases coming in that are very old, from the pre-financial crisis period. We have to disentangle the cases spawned by the financial crisis from other litigation that is arising.’

Byrne Hill added that old claims are still being brought because ‘people are pleading that they did not know about recent facts and therefore are granted an extension to the limitation period, or something very bad like fraud is uncovered.’

According to the statistics, oil and gas producers accounted for 19% of the FTSE 100 total, at a cost of over £5bn. However the biggest rise in contribution came from the pharmaceutical sector, where there was a 63% jump – from £612m in 2015 to £1bn in 2016.

HSF disputes partner James Baily, who represents oil and gas industry clients, said: ‘There are a number of issues that have forced oil and gas companies to assess their position and potential risk. There has been a growing trend in litigation in relation to upstream oil and gas projects, and there are also new issues coming forward such as class actions arising out of climate change. It’s a US phenomenon, but English courts have been open to accepting jurisdiction on some of these claims.’

Baily also argued that the fall in oil prices has meant that certain projects have been put on hold, which also gives rise to more litigation.

Thomson Reuters’ research echoes that done by City firm RPC in April 2017. Figures published by the firm revealed a marked 37% increase in litigation against the largest 50 global banks in 2017, with the rates rising year on year. According to the research, the big four UK banks also made up 67% of 784 High Court cases involving the global top 50 in 2016.