Are the UK’s major banks staring down the barrel of the “new PPI scandal”, as consumer finance specialist Martin Lewis has warned?
Lloyds Banking Group has appeared to play down suggestions that the City watchdog’s probe into the motor finance market will lead to it shelling out the kind of compensation it doled out because of the payment protection insurance (PPI) scandal.
Chief financial officer William Chalmers said today that the car finance investigation was “not like prior remediations” when asked by reporters if it bore the hallmarks of the PPI mis-selling debacle, which is estimated to have resulted in banks paying out £40 billion in compensation.
However Lloyds, which itself has distributed more than £20bn in PPI pay-outs, is certainly taking the matter seriously.
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And that is not surprising, given that the bank has such a big presence in the motor finance market through its Black Horse brand and because analysts at RBC Capital have forecast the investigation could cost the banking industry as much as £16bn. Other analysts have calculated that the cost to banks will not be as high, but will run into the billions all the same.
Publishing its annual results today, Lloyds set aside £450 million to deal with potential claims. However, it said there remains “significant uncertainty as to the extent of misconduct and customer loss, if any, the nature and extent of any remediation action if required, and its timing.”
“The ultimate financial impact could therefore materially differ from the amount provided, both higher or lower,” Lloyds added.
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It will be some time before the full extent of Lloyds’ financial exposure to the investigation becomes clear. But in the meantime, investors in the bank would not appear to be too concerned. Shares in the bank, which fell sharply after the FCA launched the probe, rose more than 6% today, as investors welcomed a healthy dividend valued at £1.17bn, as well as a share buyback worth up to £2bn.
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