Lloyds Banking Group (LBG) and Barclays have both announced they may have to add over £1.5 billion extra to their PPI provision to make sure they can pay out on a massive spike of complaints leading up to the claims deadline.
Lloyds came first, announcing it may add a further £1.8 billion to be followed a day later by Barclays who announced the huge surge in claims had prompted it to set aside up to a further £1.6 million.
The LBG increase came on top of the £½ billion increase it announced in July, just weeks before the deadline when the rate of claims had started to soar.
Up to 900,000 PIRs a week
It had estimated it would receive up to 190,000 PPI information requests (PIRs) a week in the run up to the deadline, but in fact it received between 600,000 and 900,000 a week.
The statement said: “Including claims by the Official Receiver, the group now estimates that it will need to make an incremental charge for PPI claims, in addition to the provisions to 30 June 2019, in the range of £1.2bn to £1.8bn in its Q3 interim management statement.”
It added that the bank was suspending its share buy-back plan because of future uncertainty over PPI. The buy-back was its way of returning money to investors.
In February LBG said it planned to buy back £1.7 billion worth of its shares, but now ‘given the uncertainty about the final outcome of PPI’ it had decided to suspend the programme with £600 million unused.
Announcing their half year figures in July Barclays calculated the £360 million it had left in the kitty would be enough to see it through to the claims deadline on August 29th, but it did warn it would keep the position under review.
It is now blaming a “significantly higher volume of PPI-related claims” for the need to set aside another £1.6 billion.
The bank’s total provision is now £11.2 billion for PPI, but that remains half of the £22 billion Lloyds has ear-marked.
The reference to the Official Receiver by LBG concerns a joint investigation across the industry by the Financial Conduct Authority (FCA) and the Official Receiver to ensure creditors, including HM Revenue & Customs, receive assets owed.
They will be contacting creditors in bankrupts’ estates to see if they have received their fair share of any payment of a successful PPI claim.
One commentator told The Times that the investigation would look at the estates of people who had died as far back as 1985 and the extra cost could be as high as £18 billion shared between all lenders.
But if the PPI was taken out after an individual bankruptcy was either finished or annulled the individual would be entitled to keep any compensation awarded.
LBG and Barclays are not the only banking groups to be hit hard in the run up to the deadline.
RBS had previously announced it felt the need to increase its PPI pot by up to £900,000 because of the massive surge of claims leading up to the deadline.
One un-named source told The Times newspaper that bankers had reported vans arriving with boxes of PPI claims just before the deadline, creating a backlog.
CYBG – the former Clydesdale Yorkshire Bank – is the last lender so far to announce an increase.
In a special statement to the stock market it revealed it may need to add a further £450 million after admitting it had underestimated the surge in claims towards the deadline.
In its third quarter trading update at the end of July, CYBG said the number of complaints received was ‘in line with the Board’s expectations’ and made no increase in its provision.
But in its special statement it revealed it had received more than eight months’ worth of PPI information requests (PIRs) in the four weeks leading up to the deadline, with 120,000 arriving in the last three days.
The scale of the announcement was underlined by a 20% drop in its share price.