Barclays Sets Aside $1.13 Billion More for PPI Compensation
Stock Chart for Barclays PLC (BARC)
Barclays Plc (BARC) will set aside an additional 700 million pounds ($1.13 billion) to compensate clients wrongly sold payment-protection insurance, weeks after former consumer banking head Antony Jenkins became chief executive officer.
The provision is on top of the 300 million-pound charge Britain’s second-largest bank took in the first quarter, the London-based Barclays said today in a statement.
“If I were Antony Jenkins, I would not want this noise in the final quarter,” said Christopher Wheeler, a London-based analyst at Mediobanca SpA. Taking the charge now will mean there will be less to distract investors when the bank unveils its strategic plan in February, he said.
U.K. banks may have to increase provisions on top of at least 9 billion pounds charged to redress claims related to the insurance sold with home loans and other credit. Lloyds Banking Group Plc (LLOY), Britain’s biggest mortgage lender, has set aside 4.3 billion pounds to redress customers sold PPI. Its CEO, Antonio Horta-Osorio, in July blamed so-called claims-management companies, which help individuals pursue cases against firms for a fee or percentage of any successful award, for inflating the costs.
The Financial Ombudsman Service, Britain’s financial adjudicator, said it received about 19,800 PPI-related complaints from Barclays clients in the six months to June 30. The ombudsman received about 20,200 PPI complaints about Lloyds in the period, about 3,800 for Royal Bank of Scotland Group Plc and about 7,700 for HSBC Holdings Plc.
“Based on claims experience to date and anticipated future volumes, the resulting provision includes Barclays’s best estimate of expected costs of future PPI redress,” the bank said.
Today’s charge brings the total Barclays has set aside to compensate customers who were sold the insurance on loans unnecessarily or without their knowledge to 2 billion pounds. RBS (RBS) has set aside 1.3 billion pounds and HSBC Holdings Plc (HSBA) about 1.1 billion pounds.
Lloyds may have to increase its provision by as much as 2.3 billion pounds, Ian Gordon, a London-based analyst at Investec Plc (INVP), estimated in a note to clients today.
“We doubt it will be that bad, but we expect it to hurt,” he wrote in the note. Barclays and Lloyds each paid out 69 percent of their provisions at June 30, Gordon estimates, meaning the two banks “held the least conservative levels of provisioning against ongoing PPI claims.”
Barclays’s pretax profit for the third quarter, excluding the PPI provision and a charge of 1.1 billion pounds of swings in the value of its own debt, will still be in line with analysts estimates of about 1.7 billion pounds, Barclays said. The bank is scheduled to report third-quarter earnings on Oct. 31.
Jenkins said last month that employee performance will be measured against the firm’s values as well as financial achievement as part a plan to overhaul the bank’s culture following a number of banking scandals. Incentive programs are likely to encourage employees to mis-sell to meet targets and receive bonuses, the Financial Services Authority said, following a study of 22 firms.
Barclays in September was also criticized by lawmakers for being slow to redress customers mis-sold interest-rate hedging products after setting aside 450 million pounds for complaints.
Jenkins succeeded Robert Diamond in August after the bank was fined a record 290 million pounds by U.S. and U.K. regulators for manipulating the London interbank offered rate, a benchmark for more than $300 trillion of securities.
The shares fell 3.7 pence, or 1.5 percent, to 240.7 pence in London trading.
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