Banks facing £56bn PPI bombshell as they are hammered by a rush of last-minute claims before August 29 deadline
Published: 21:51 BST, 5 September 2019 | Updated: 21:51 BST, 5 September 2019
Banks have been hammered by a rush of last-minute PPI claims that will cost them an extra £17billion.
The deluge of compensation demands lodged before the August 29 cut-off date is expected to bring lenders’ total bill to more than £50billion.
The previous running estimate was put at £36billion, with analysts saying the final cost was ‘well beyond people’s expectations’.
The deluge of compensation demands lodged before the August 29 cut-off date is expected to bring lenders’ total bill to more than £50bn
As the Co-op Bank became the latest bank to warn of a late spike in claims, shares in Clydesdale Bank owner CYBG crashed by more than 21 per cent after it revealed it had been hit with nearly 10,000 per day in the weeks before the deadline.
It came just a day after state-backed Royal Bank of Scotland said it was having to lock away up to £900million more to cover the stampede of claims it was also facing.
Dominic Lindley of think-tank New City Agenda said the final rush before the deadline meant lenders were likely to have to put aside £53billion overall – £17billion more than previously thought.
CYBG said it received 340,000 PPI compensation claims in the five weeks running up to the August deadline. It is expected to cost between £300million and £450million, on top of the £2.67billion it had already set aside.
Ian Gordon, banking analyst at Investec, said the admission was ‘really quite shocking in terms of the anticipated damage’.
‘The numbers are much, much worse than the market was expecting,’ he said.
The turmoil saw its shares plunge 21.4 per cent, or 29.95p, lower to 110p, wiping £263million off the value of a 13 per cent stake owned by Sir Richard Branson.
Co-op Bank said it had received a flood of additional claims and said it would end up costing more than the £540.3million it had already accounted for.
PPI, or payment protection insurance, was designed to cover loan repayments if borrowers fell ill or lost their job. But many PPI products were sold to borrowers who did not want or need them.
Bank customers were encouraged to submit a PPI claim even if they didn’t know whether they bought it. Gordon declared: ‘I’m reasonably confident that it’s been the worst single-issue value destruction of all time.’
Banks have so far paid out £36billion, with an average payout of £2,000 per person.
The Financial Conduct Authority set a deadline of August 29 to encourage potential victims to submit their claims, publicising it with adverts featuring a likeness of the character Arnold Schwarzenegger played in The Terminator.
But many in the industry have complained the claims process has been wringing the lenders dry.
Tushar Morzaria, Barclays’ chief financial officer, last month claimed the lender was getting thousands of ‘vexatious’ claims via management companies on behalf of people who did not even bank with them.
Another bank boss told the Mail at least 90 per cent of PPI claims are fake, and of the 10 per cent which aren’t, many had not been victims of mis-selling. Barclays and Lloyds declined to comment.
- Business Secretary Andrea Leadsom has urged banks to keep lending to smaller companies after Brexit.