by UK PPI Claims on August 1, 2011
PPI claims from mis-sold consumers are having a dramatic effect on the financial performance of the UK’s leading banks, according to analysts forecasts, which could affect share prices as the country’s leading retail finance names gear up to publish their annual performance figures.
The next seven days is expected to deliver results from RBS, Barclays, Lloyds and HSBC, all of whom are amongst the most heavily liable banks to the PPI scandal. Reflecting performance in the first half of 2011, accounts from across the industry are anticipated to show a significant depression of profits, with both the lost revenues from PPI sales and the effects of compensation expected to play a major role.
In anticipation of the results, banking shares on the whole have already lost value in the days running up to their publication, and it is thought that revelations of the true extent of the damage will have a further impact on share prices as the markets assess the damage.
But the blow from PPI is not the only factor affecting banking sector performance at the moment, with a number of other problems weighing in to make conditions tough for the country’s largest banks. Fears over global debt and exposure to some of the worst afflicted European markets is helping shed doubt on the financial picture across the industry. When taken into consideration alongside ongoing PPI liability, the picture for retail banking looks even more bleak.
While the results will no doubt be seen as a blow for the industry, and will no doubt serve as a painful reminder to the banks of the damage that mis-selling to consumers can do to reputation and balance sheets, the real extent of the PPI problem will only truly transpire over time as an increasing number of claims are settled and compensation payouts materialized.
by UK PPI Claims on July 29, 2011
PPI claims are now at the heart of the day to day operations of banking claims teams, with full divisions of staff dedicated to resolving consumer complaints and compensation demands. With potentially as many as 20 million questionable policies nationwide that could give rise to compensation, the burden now being placed on bank coffers is testament to how central to the business model PPI had become.
Payment protection insurance, which is designed to guard against the risks of defaulting on loan repayments by virtue of accident, illness or unemployment, was initially sold as a complimentary product to all forms of credit, in order to top up the profitability of credit products. As PPI selling methods gradually became more aggressive, the number of policies sold to consumers on false pretenses or sold to consumer who were known to be unsuitable grew to epic proportions, providing the banks with substantial additional revenues which helped prop up balance sheets across the industry.
With PPI sold so widely, it became an important aspect of the financial model of lending to consumers, and as a result is now causing significant difficulties as banks scramble to meet their compensation obligations.
As banks are now continuously engaged in addressing consumer complaints, the real importance of PPI is beginning to crystallize. Since the Judicial Review hearing in April 2011, banks have been unable to depend on the vast profits delivered by PPI. But the secondary blow in the form of compensation payable to mis-sold consumers has the effect of doubling the damage to the banks, at a time when banking balance sheets are already more vulnerable than they have been for generations. With PPI, so crucial to the retail model, now largely unavailable to banks as a compliment to lending product, the search is now on for alternative means of raising revenue to combat the loss of PPI.
