Misselling set to cost banks £12bn

Tim Wallace
Follow Tim
BARCLAYS put aside another £700m yesterday to deal with soaring payment protection insurance (PPI) misselling claims, as analysts warned that other banks would also have to increase their provisions.

Analysts expect the four biggest banks to have set aside an additional £2.2bn over the last quarter to cover PPI misselling, taking the total for the sector as a whole to close to £12bn.

Yesterday’s news takes Barclays’ expected payout to £2bn. The industry’s total earmarked for compensation has now smashed the £10bn mark, with many in the City now expecting this figure to increase by at least another 20 per cent.

More costs are expected to come from regulators’ Libor probes and US investigations into banks breaking sanctions against Iran.

Analysts yesterday said Barclays is just the first of many UK banks which will need to put yet more cash aside to cover the compensation claims.

“We expect UK banks to take PPI provisions of £2.2bn,” said Nomura’s Chintan Joshi.

He forecasts Lloyds will set aside an additional £1bn, RBS an extra £350m and HSBC £150m more.

“As Barclays has acted preemptively, we assume slightly higher claims for it than industry trends would suggest,” he explained.

Lloyds has long made clear it may have to raise PPI provisions beyond the £4.275bn already announced.

“As we said in our half year results there remain a number of uncertainties as to the eventual costs of redress and we continue to monitor the position,” said a spokesperson.

RBS, which has already set aside £1.325bn, declined to comment. HSBC, which has earmarked £1.096bn, was not available for comment.

Barclays said in a statement it “has experienced higher than previously anticipated levels of PPI claim volumes since the end of the first half”.

The bank has paid out £0.9bn in PPI compensation so far, 69 per cent of the £1.3bn that was previously set aside. It is thought that aggressive marketing by claims management firms is one reason for the recent spike in claims.

And it warned the extra costs of PPI claims and a £1.1bn own credit charge – together totalling £1.8bn – mean it expects to make a loss of roughly £100m in the third quarter.

“Barclays currently expects the group adjusted profit before tax, which excludes the impact of own credit (expected to be a charge of £1.1bn) and the provision for PPI redress, for the three months ended 30 September 2012 to be broadly in line with current market consensus of £1.7 billion.” The bank’s shares ended the day down 1.51 per cent.

One reason for Barclays setting aside such a large sum is thought to be that new chief executive Antony Jenkins wants to draw a line under the scandal, so it does not continue to tarnish the bank’s brand or hit his leadership.