• Text size      
  • Send this article to a friend
  • Print this article

Bank could face bill of £850m to compensate small businesses

The mis-selling of complex products to small businesses could cost the Royal Bank of Scotland as much as £850 million in compensation, 17 times the bank's current provision in its accounts.

RBS has so far estimated that it will have to pay out only £50m. But analysts at investment bank Nomura say their £850m estimate is based on RBS's small business exposure and the calculations of rival Barclays, which has a similar customer base and has already made a provision of £850m.

The two banks along with Lloyds and HSBC have just begun a review of all sales of interest rate swap agreements (IRSAs) and other hedging products, after a critical pilot study by the Financial Services Authority found mis-selling in 90% of past sales.

"RBS has 1.2 million SME customers, of which 5000 have live transactions," Nomura said.

Although RBS has said it sold fewer than 600 of the more complex IRSAs triggering automatic redress, that is still more than twice the combined sales of those products admitted by Lloyds and HSBC.

Nomura estimates that Lloyds will end up making a provision of £600m this year and HSBC £500m, making a total £2.8bn for the four banks, almost four times their original combined provisions of £750m.

Sir Philip Hampton, RBS chairman, told the annual meeting in Edinburgh last May that RBS had sold "simple risk management products" and that out of 67 complaints to the ombudsman only one had been upheld.

In August the bank made the £50m provision against mis-selling costs.

Contextual targeting label: 

Commenting & Moderation

We moderate all comments on HeraldScotland on either a pre-moderated or post-moderated basis.
If you're a relatively new user then your comments will be reviewed before publication and if we know you well and trust you then your comments will be subject to moderation only if other users or the moderators believe you've broken the rules

Moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours. Please be patient if your posts are not approved instantly.