Thursday 5 September 2019 9:03 am

CYBG share price plunges after warning of potential £450m hit from PPI

CYBG’s share price crashed by nearly 20 per cent in early morning trading, as investors reacted to the bank’s news last night that it would take a £300m-£450m hit from payment protection insurance (PPI) costs.

Clydesdale Bank, which also owns the Yorkshire Bank and Virgin Money brands, revealed yesterday evening that it expects to increase its provisions for legacy PPI costs by £300-£450m following a large volume of complaints in the run-up to the deadline on 29 August.

Read more: RBS could face £900m hit from PPI claims

In an update to the London Stock Exchange after trading closed last night, the firm revealed that it received more than eight months’ worth of information request during August, as customers made an 11th-hour stampede before the window shut.

“We received more than eight months’ worth of Information Requests in one month with c.340,000 in aggregate over five weeks, of which c.120,000 of these were received in the final three days,” the bank reported. 

The group said it had received “unprecedented volumes” of requests for information from customers in the run-up to the complaints deadline.

It was expecting a “material” cost, but it could take several months before determining the quality of the complaints received and the potential related financial impact.

“CYBG announcing a further £300-£450m PPI hit but the swing factor is on conversion of information requests which comprise £100-£250m of the charge which presents a material wild card,” said analysts at Jeffries.

They added: “Given management’s credibility is challenged on PPI, investors are likely to avoid this share until results at 28 Nov.”

Neil Wilson, chief market analyst for Markets.com, said: “First RBS, now CYBG, they’ve all completely underestimated the amount of last minute claims.

“Banks have consistently failed to account properly for these costs – the lack of visibility they’ve had is really concerning and does not suggest banks have ever really adequately investigated the potential cost to their business from PPI – they’ve only ever reacted to claims and not been able to give investors a proper view.”

Read more: Banks buckle under strain of PPI claims

Yesterday the Royal Bank of Scotland (RBS) also warned that an unprecedented number of PPI claims in the run up to the August deadline could cost it up to an extra £900m.

RBS expects to take an additional charge of between £600m and £900m relating to the mis-selling of payment protection insurance (PPI).

The bank, which is part-owned by the UK taxpayer, had already set aside £5.3bn to the end of June for PPI claims, £4.9bn of which it had spent.

But a flood of complaints before the 29 August deadline means the scandal will cost the bank much more, it said yesterday.

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