Bill may top $24 billion as Barclays takes further PPI hit

LONDON Thu Oct 18, 2012 1:06pm EDT

A man passes automated teller machines at a Barclays bank branch in London August 30, 2012. REUTERS/Neil Hall

A man passes automated teller machines at a Barclays bank branch in London August 30, 2012.

Credit: Reuters/Neil Hall

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LONDON (Reuters) - Compensating Britons sold unwanted insurance policies could cost banks as much as 15 billion pounds ($24.2 billion) after Barclays reported a spike in claims, forcing it to set aside a further 700 million pounds.

Britain's banks have now set aside more than 10 billion pounds to compensate customers wrongly sold payment protection insurance policies, one of the worst consumer financial scandals in British history, and bankers are concerned the bill could rise by at least 5 billion pounds more.

Barclays said on Thursday it had experienced higher than anticipated levels of PPI claims since the end of June, and had lifted its provision to 2 billion pounds, from 1.3 billion pounds.

Barclays shares closed down 1.5 percent, underperforming a flat European banking sector.

Barclays had paid out 1.2 billion pounds in compensation by the end of September, leaving 800 million pounds to cover expected future redress for customers.

PPI policies were typically taken out alongside a personal loan or mortgage to cover repayments if customers fell ill or lost jobs, but they were often sold to people who did not want or need it.

Compensation has swelled as claims management companies have aggressively pursued claims in return for a chunk of any payout.

"You only have to listen to the advertising on radio or television from the PPI claims management companies - it's become an industry in its own right so that's what is driving it," said Gary Greenwood, analyst at Shore Capital.

Banks also face paying compensation for mis-selling interest rate hedging products and have been slammed by regulators for manipulating Libor interest rates, sparking fierce criticism of the culture across the industry.

"It's open season on the banks, whether you are a PPI claims management company or a regulator in New York," Greenwood said.

Data released by Britain's financial regulator showed payouts by UK banks fell in June and July after they paid out 730 million pounds in May, raising hopes among banks that claims had peaked, but Barclays' move could show claims rose again in August and September.

Lloyds Banking Group has set aside 4.3 billion pounds for PPI mis-selling and RBS has set aside 1.2 billion pounds, and they appear likely to have to lift their provisions based on Barclays' move, analysts said.

HSBC has set aside 1.1 billion pounds and Santander UK has provisioned 538 million.

There could also be a long wait for payouts, as banks are struggling to deal with all the claims.

The Financial Ombudsman Service, which deals with cases where banks and customers cannot agree a settlement, said about 1,500 new cases were arriving every day.

Barclays made the disclosure before its third-quarter results on October 31. It said adjusted profits in the three-month period, which exclude the PPI provision, should be "broadly in line" with analysts' forecasts of 1.7 billion pounds. ($1=0.6199 British pounds) (Additional reporting by Matt Scuffham; Editing by Mike Nesbit)

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