As banks add more than £4.9 billion to their PPI compensation pots AFTER the claims deadline, commentators are beginning to ask how they could have got their sums so wrong.
When the scandal first raised its head back in 2007 the Financial Services Authority (FSA) estimated the total bill for mis-selling as between £3 billion and £4 billion.
Over a decade later more than £36 billion has already been paid out and experts are predicting the final bill could go as high as £53 billion – £50 billion more than the original estimate!
City AM finance writer Neil Wilson commented: “The end is in sight for banks and PPI claims, but what’s been made abundantly clear is just how badly they estimated the losses.
These are not abstract losses or mere balance sheet adjustments – these payments gnaw away at profits and shareholder returns.
“The truth is banks have consistently and systematically failed to account properly for PPI claims. Shareholders should be banging down the board room doors and demanding the heads of those responsible.”
Financial journalist Nils Pratley said: “It’s amazing now to recall that, back in 2011, when the chief executive, António Horta-Osório, commendably broke ranks with his industry’s defence of the indefensible, Lloyds reckoned it was looking a bill of a mere £3.2bn for PPI. By late 2014, the provisions had reached £10 billion and the finance director confessed that getting a grip of the final figure was ‘fiendishly difficult’.
“To this day, you’ll find bankers who blame Horta-Osório for opening the compensation floodgates. That view is also deluded.
The banks were losing their PPI legal fights in the courts and the then-new Lloyds boss was correct to conclude that a reckoning had to happen. The industry has only itself to blame.”
Lloyds have now set aside more than £22 billion to pay out successful claims.
Just weeks before the deadline it added £½ billion to the pot, but less than a month later it was forced to announce the addition of up to £1.8 billion more because of the massive influx of new claims in the lead up to the deadline.
When Barclays announced its half year figures in July it said 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.
Immediately after the deadline closed that review led them to announce that an additional £1.6 billion was being made available to pay out claims, blaming a ‘significantly higher’ number of complaints than they had expected.
64 million sold
The Financial Conduct Authority (FCA) believe around 64 million PPI policies have been sold since the 1980s and, while not all of them would have been mis-sold, it is apparent from the sheer volume of late claims that there are potentially many more complaints still to be settled.
The banks say they have been swamped with PPI information requests (PIRs) as consumers registered their intention to make a possible claim before the final deadline on August 29th.
Boxes of claims
There have been reports of vans arriving with boxes of claims needing to be dealt with.
Announcing their £1.8 billion increase, LBG revealed they had been receiving up to 190,000 PIRs a week as the deadline loomed.
Half of all charges
Figures just released by the Moody’s credit agency show that the cost for the mis-selling of PPI accounts for more than half the litigation and conduct charges faced by Britain’s banks.
A spokesman said: “PPI was the largest single source of conduct and litigation charges from 2011 to the first half of 2019, as the country’s five largest banks took a balance sheet hit from a long-running scandal.”
The massive surge in late claims will inevitably slow down the investigation process and some experts are suggesting it could be as late as Spring 2020 before we have the final total.
It’s impossible to say how big it will be, but it’s safe to say it will be many times higher than the figure suggested way back in 2007.