UK Edition
Shareholders hail end of an era as PPI deadline looms - but banks still face £1bn bill
The total bill for mis-sold payment protection insurance is expected to hit £50bn this week as the banks take a final hit for customer claims.
Ian Gordon, a banks analyst at Investec, estimates that the UK banking sector will have to top up its gigantic PPI pot by just under £1bn after the Aug 29 deadline for complaints.
“It may take until the end of the year to finalise matters – especially if there is a very material late surge over the final week,” he said. “The ‘tail’ – largely using provisions already in hand plus associated admin costs – likely takes the final total close to £50bn.”
John Cronin, a banks analyst at Goodbody, agreed that a final hit of around £1bn is on the horizon for Britain’s banks as the scandal finally draws to a close. The UK banking sector has so far paid out £36bn in PPI claims since the scandal erupted in 2011 but another £14bn will be set aside this year to cover future compensation and administrative costs. Banks have been flooded with complaints in recent weeks as customers have rushed to meet this week’s deadline.
George Culmer, the outgoing finance chief of Lloyds Banking Group, said last month that the lender was caught “by surprise” after calls for compensation claims rose to almost 200,000 per week and forced it to add an unexpected £550m to its PPI pot.
The scandal has cost it more than £20bn, significantly more than the £3.2bn chief executive Antonio Horta-Osorio initially put aside in 2011.
One investor with holdings in a number of major UK banks said that even though this has been “one of the biggest boosts to the economy” shareholders were looking forward to the doors closing on the scandal so that they can “get some better dividends”.
Banks sold the product – to cover debt repayments if someone could no longer work – to around 64m people alongside mortgages, credit cards, overdrafts and loans during the Nineties and 2000s. However, many customers were signed up without their knowledge while others would never have been able to make a claim.
Barclays’ finance chief Tushar Morzaria said last month that claims management companies had swamped the bank with “vexatious claims” from those who had never been a customer.
John McFarlane, Barclays’ former chairman who was last year criticised for saying PPI had turned “portions of Britain into fraudsters”, has argued that the “percentage of spurious claims by claims management companies was very significant”.