Britain’s banking sector is bracing itself for a multi-billion pound balance sheet backlash from a worse-than-expected rush of payment protection insurance (PPI) complaints that were lodged late last month.
Some of the country’s largest banks are facing huge costs following a stampede of consumers making claims for mis-sold PPI in the run-up to the August 29 deadline.
Royal Bank of Scotland (RBS) and CYBG have warned that an unprecedented number of complaints could cost up to £900m and £450m respectively, with both groups blaming significantly higher claims last month for a worse-than-expected blow to profits.
The Co-Operative Bank also revealed that it had received “a substantially greater volume of inquiries and complaints than expected”, but said it needed more time to give a full estimate of the costs.
The City’s watchdog, the Financial Conduct Authority (FCA), has reported that roughly £36bn in compensation has been paid out so far, with the typical payout amounting to £2,000.
However, think tank New City Agenda has predicted that the total PPI bill could cost as much as £53bn.
Martin Lewis, the founder of MoneySavingExpert.com who has been at the forefront of the PPI compensation campaign, told City A.M.: “I think it will certainly be over £40bn and it would not surprise me if it was closer to 50bn.
“But it is difficult to estimate what proportion of people will get that payout, because this isn’t about people with PPI complaining about it, its people asking whether they had it and could complain about it.”
Investor jitters over the potential fallout from PPI were underlined today when CYBG’s share price plunged by roughly 20 per cent, with analysts worrying that the PPI costs could endanger the firm’s dividend.
“The PPI deadline was one of the bull stories for banks last year – they could get it out the way and know what’s owed. But it won’t take much for people to be frightened in an environment that’s already troubling for banks,” said Russ Mould, investment director at AJ Bell.
He added: “People are waiting to see what comes out at Lloyds and Barclays.”
“Lloyds in theory is the most exposed,” said Gary Greenwood, a banking analyst at Shore Capital.
He told City A.M: “Further provisions would hit capital generation and could impact their ability to do further share Buy backs in near term. I’m surprised they haven’t said anything yet. Although I note they did take a £550m top up in quarter two.”
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Some of Britain’s biggest banks have come under fire for suffering a series of IT failures in the run-up to a long-awaited payment protection insurance (PPI) deadline.
A number of major high-street lenders were rushing to fix website glitches and jammed phone lines, with customers venting their fury on social media as the likes of Santander, RBS, Barclays and The Co-operative Bank all reported temporary issues with their technology.