Fresh wave of PPI costs set to hit HSBC

As Britain’s largest lenders set aside billions of pounds for Payment Protection Insurance (PPI) mis-selling compensation, HSBC is set to become the latest bank to set aside additional funds to cover potential future compensation payments.

The mis-selling of Payment Protection Insurance has been confirmed as the financial sectors worst ever scandal and has seen the total compensation bill rise above £23bn after four banks set aside a further £1.7bn.

PPI is a type of insurance that was attached to loans and other financial agreements as a way of covering payments if a borrower fell ill or lost their job, however, it was mis-sold to many customers.

HSBC has set aside £2.1bn for PPI claims so far, considerably less than other high street banks and lenders, but still much more than they initially anticipated when the scandal first emerged.

It is expected that the bank will allocate a further £75m this year to cover potential claims.

It’s emerged Douglas Flint, HSBC chairman, has written to Chancellor George Osborne suggesting that the timetable for ring-fencing British retail banks by 2018 should be extended.

He said this would allow time for any structural changes proposed by the Competition and Markets Authority as part of its planned investigation into retail and small business lending.

HSBC has faced other considerable misconduct charges, including a $1.9bn fine from US regulators in 2012 for violating anti-money laundering rules and breaching sanctions. HSBC is also still being investigated over Libor interest rate rigging.

Richard Lloyds, executive director at consumer group Which?, said the latest round of provisions – which were significantly higher than analysts had expected – meant PPI was now “by far the UK’s biggest mis-selling scandal”.

Lenders are also facing a fresh outbreak of other compensation costs, which some have warned could hold back their performance for years to come.

Analysts have estimated that additional PPI compensation claims, costs related to investigations into the rigging of foreign exchange rates and potential liabilities for US mortgage-backed securities will cost UK banks a further £15bn over the next three years, on top of the £30bn they have already set aside.

The latest jump in PPI costs was fuelled in part by higher than expected claims on policies taken out before 2005.

Analysts and banks fully expect PPI costs to fall over the next year, although Martin Wheatley, chief executive of the Financial Conduct Authority, said in February that it was not likely to introduce a time limit on payouts to customers, despite some banks wanting a deadline.

Posted on Tue 05 Aug 2014