Barclays PLC set aside £1 billion (US$1.6 billion) to compensate consumers who were wrongly sold insurance, as British banks as a whole backed down in the fight against accusations of “mis-selling.”
In a fresh blow to an industry already under pressure from UK regulators to clean up its act following the financial crisis, banks said they would not appeal against a ruling requiring them to compensate people for mis-selling payment protection insurance (PPI).
Analysts have said the case could cost banks about £8 billion.
“In the interest of providing certainty for their customers, the banks and the British Bankers’ Association [BBA] have decided that they do not intend to appeal,” the BBA said in a statement yesterday.
Natalie Ceeney, who heads the Financial Ombudsman Service, said the agency had been received up to 5,000 complaints each week from consumers since October.
“We will be working with the banks, over the coming weeks, to ensure that consumers’ complaints are dealt with fairly and promptly,” she said.
The Financial Services Authority [FSA] has told banks that customers must be told if the insurance is optional, and they must be advised of their right to cancel. The agency also said the seller must be sure that the customer is eligible to claim under the policy.
The banks had said the association’s standard should not be applied retrospectively.
Barclays said it would make a £1 billion provision in the second quarter of this year to cover the cost of “future redress and administration” related to PPI mis-selling.
The hit to Barclays comes after rival Lloyds last week unveiled a shock £3.2 billion charge to cover compensation as it became the first to back down after years legal of wrangling.
“This is another negative for the banking sector. It means even more costs for the banks, which were already facing mounting costs on their capital structures,” said John Smith, fund manager at UK investment firm Brown Shipley.
Banks also face higher costs from plans by a government-appointed commission to make them hold more capital and form separate subsidiaries for their retail and investment banking operations, an effort to better protect retail customers and shield the banks in the event of another financial crisis.
Bank overdraft fees also remain in the spotlight after being criticized for being opaque by British Business Secretary Vince Cable and parliament’s Treasury Select Committee.
The payment protection insurance policies were typically taken out alongside a personal loan or mortgage to cover repayments if customers fell ill or lost their jobs.
However, the policies were sold to self-employed or unemployed people who would not have been able to claim and to consumers who did not realize they were taking out a policy, and last month a court ruled the banks were at fault.
Barclays said it had agreed with the FSA regulator to contact customers and to assess the situation.
“We don’t always get things right for our customers; when we get them wrong, we apologize and put them right,” Barclays chief executive Bob Diamond said in a statement.
Royal Bank of Scotland (RBS) said last week it was too early for it to estimate the possible impact but said settling claims could be “material.” Deutsche Bank analysts have said RBS could face a £1 billion provision on the PPI mis-selling.
Bank of America has also raised its provision for mis-selling to US$650 million from an original US$592 million.
Spain’s Santander had not challenged the findings of regulators and has already been paying compensation.
ISSUES: Gogoro has been struggling with ballooning losses and was recently embroiled in alleged subsidy fraud, using Chinese-made components instead of locally made parts Gogoro Inc (睿能創意), the nation’s biggest electric scooter maker, yesterday said that its chairman and CEO Horace Luke (陸學森) has resigned amid chronic losses and probes into the company’s alleged involvement in subsidy fraud. The board of directors nominated Reuntex Group (潤泰集團) general counsel Tamon Tseng (曾夢達) as the company’s new chairman, Gogoro said in a statement. Ruentex is Gogoro’s biggest stakeholder. Gogoro Taiwan general manager Henry Chiang (姜家煒) is to serve as acting CEO during the interim period, the statement said. Luke’s departure came as a bombshell yesterday. As a company founder, he has played a key role in pushing for the
China has claimed a breakthrough in developing homegrown chipmaking equipment, an important step in overcoming US sanctions designed to thwart Beijing’s semiconductor goals. State-linked organizations are advised to use a new laser-based immersion lithography machine with a resolution of 65 nanometers or better, the Chinese Ministry of Industry and Information Technology (MIIT) said in an announcement this month. Although the note does not specify the supplier, the spec marks a significant step up from the previous most advanced indigenous equipment — developed by Shanghai Micro Electronics Equipment Group Co (SMEE, 上海微電子) — which stood at about 90 nanometers. MIIT’s claimed advances last
EUROPE ON HOLD: Among a flurry of announcements, Intel said it would postpone new factories in Germany and Poland, but remains committed to its US expansion Intel Corp chief executive officer Pat Gelsinger has landed Amazon.com Inc’s Amazon Web Services (AWS) as a customer for the company’s manufacturing business, potentially bringing work to new plants under construction in the US and boosting his efforts to turn around the embattled chipmaker. Intel and AWS are to coinvest in a custom semiconductor for artificial intelligence computing — what is known as a fabric chip — in a “multiyear, multibillion-dollar framework,” Intel said in a statement on Monday. The work would rely on Intel’s 18A process, an advanced chipmaking technology. Intel shares rose more than 8 percent in late trading after the
GLOBAL ECONOMY: Policymakers have a choice of a small 25 basis-point cut or a bold cut of 50 basis points, which would help the labor market, but might reignite inflation The US Federal Reserve is gearing up to announce its first interest rate cut in more than four years on Wednesday, with policymakers expected to debate how big a move to make less than two months before the US presidential election. Senior officials at the US central bank including Fed Chairman Jerome Powell have in recent weeks indicated that a rate cut is coming this month, as inflation eases toward the bank’s long-term target of two percent, and the labor market continues to cool. The Fed, which has a dual mandate from the US Congress to act independently to ensure