Banks braced for the final PPI surge
Further £10billion in payouts due as deadline looms
THE big high street banks are bracing themselves to pay out another £10billion in PPI mis-selling compensation as the final deadline for filing claims looms closer.
From next Thursday, customers who feel they have been mis-sold a policy have exactly six months to file a claim before the final deadline of August 29.
The Financial Conduct Authority (FCA) recently ordered firms to contact some 150,000 consumers whose complaints had been rejected to say they can make a new complaint, fuelling expectations of a final costly rush.
The banks have already paid out £33.8billion since January 2011 in what is the UK’s biggest ever financial services scandal, hammering profits and sinking share prices.
Lloyds Bank has been hardest hit, paying out more than £19billion so far, with Barclays and RBS also suffering. The PPI scandal will continue to weigh on their shares over the summer but experts say demand for banking stocks could surge thereafter.
Rob James, financials analyst at Merian Global Investors, said banks have been forced to curtail their dividend payouts to cover the cost of PPI compensation: “Shareholders have suffered but this should come to an end in August.”
PPI is not the only reason for bank woes as near-zero interest rates cut margins, making it harder to attract deposits from savers.
Regulators forced the banks to increase their capital ratios to prevent a repeat of the financial crisis. “RBS did not pay a dividend to its shareholders for 10 years, and only restarted payments in 2018,” said James.
The sector has also been hit by a string of litigation and multibillion pound regulatory penalties for other scandals.
James said better days now lie ahead after a generally positive reporting season: “Bank shares are cheap, returns and dividends are rising, and uncertainty is now on the decline.” Last week, Barclays posted a headline profit before tax of £3.5billion in 2018, despite £2.2billion in litigation and conduct charges.
Lloyds reported profits of £4.4 billion, up 24 per cent from £3.5 billion the year before and hiked its dividend by 5 per cent.
Earlier this month RBS boosted its dividends to hand the Treasury a £820million windfall, as it is 62 per cent taxpayer-owned.
Richard Hunter, head of markets at Interactive Investor, said banks will benefit if we get more clarity about how the UK is leaving the EU: “Bank stocks have fallen between 10 and 15 per cent over the past year, with Brexit the main concern.”
Hunter said last week’s results showed however that past misdemeanours are beginning to fizzle out.
Graham Spooner, investment research analyst at The Share Centre, said banks face other worries as the global economy slows and competition from the new breed of challenger banks increases: “The outlook is fairly downbeat with significant risks and uncertainties in the external economic, political and regulatory environment.”
He said HSBC was hit by the US-China trade war, given its large exposure to Asia.