The ppi scandal has another £1bn added to it. Lloyds Banking Group has announced an additional charge of £1bn for the covering of redress costs which raises the company’s total to £5.3bn with more guaranteed.
Customers who had become victims of the mis-selling of payment protection insurance have not only brought a living nightmare on the bailed out Lloyds Banking Group but other high street banks have to incur ppi scandal combined costs over £10bn. The Royal Bank of Scotland has added £400m to its already massive £1.3bn compensation charge.
The total compensation bill of payment protection insurance which includes building societies and smaller banks is calculated to exceed £12bn thus rendering the 1980s’ pension mis-selling scandal second and becoming the costliest scandal in history. The example of Lloyds paying £8m every day for the past five months shows just how high the compensation costs are.
The Chief Executive of Lloyds, António Horta-Osório, says the bank is failing to quantify the total PPI cost as it is embroiled in a continuous process of assessing the level of compensation claims raised by customers through claims management firms as they haven’t had policies with the bank in the past.
Lloyds expects to forecast the final cost and trends of PPI by the 1st of March when full year reports of the year 2012 are released.
Lloyd’s depended on payment protection insurance policy which customers benefit from when they need to repay loans in times of financial instability. Now, because of the ppi compensation, Lloyds have incurred a loss of over £590m (pre-tax).
During the third quarter of 2012, the number of incoming PPI complaints was visibly reduced but was still much higher when compared to the second half’s estimates.
Analysts had estimated £2.3bn yet the cost addition was £1.3bn less. There was a rise in the bank’s shares with 8% leading to 43.9p yet the shares are below the average price of 73p which was the price paid by the taxpayer to bail the bank. This represented a £5bn paper loss.
The Portuguese Chief Executive António Horta-Osório was adamant about his decision to withdraw from the attempt to deal with PPI Claims through courts, which was being practised in the industry. His shocking decision led to the snowball rolling which resulted in the United Front’s collapse and charges were taken across other banks in the industry.
HSBC had an increase of £1.1bn while Barclays provision reached £2bn. Bank of Santander has spared £500m.
With £3.2bn, Lloyds was the first bank to take provision in 2011. This resulted in bonus cancellations for Eric Daniels, Horta-Osório’s predecessor along with other current and former bankers at Lloyds.
Lloyds said the taking of provision was necessary as without it the bank would have been continuing on false grounds. Horta-Osório, who became the Chief Executive in March of 2011, said there was loss of core values in banks and they had lost focus from the customers while displaying inefficiency and complacency. He asserted that it was imperative to address the PPI claims scandal without which there wouldn’t have been a transformation in the banking business.