Royal Bank of Scotland (RBS.L) is set to take a bigger-than-expected hit from late PPI claims, the lender warned on Wednesday.
RBS said it expects a further hit of between £600 million and £900 million for payment protection insurance (PPI) mis-selling, after a last-minute rush ahead of the August claims deadline.
It comes on top of the £5.3 billion in provisions already set aside by the bank. The part-nationalised lender said the charge will be reflected in its third-quarter results.
“The processing of claims is ongoing and the ultimate provision recognised could be above or below this range,” the bank said in a statement.
RBS shares rose 1.2% in early trade
The deadline for PPI claims was midnight on August 29 and the UK’s Financial Conduct Authority (FCA) ran an extensive advertising campaign, fronted by Arnold Schwarzenegger, encouraging people to claim for the mis-sold insurance before it was too late.
“The FCA pushed the final PPI claims deadline very hard and a final rush of customer filings was always a possibility,” said Russ Mould, investment director at stockbroker AJ Bell.
PPI is the most expensive consumer banking scandal in UK history, with compensation costs set to reach almost £50bn. RBS’ warning may fuel fears that other banks could be hit by higher charge related to deadline claims.
PPI was a form of insurance intended to help people maintain loan repayments if they fell on hard times. However, the product was aggressively marketed by banks in the 1990s and 2000s to help boost profitability. A 2011 court case ended the practice and opened the door for a wave of compensation claims from consumers.
Wednesday’s announcement “takes the total that RBS has paid out to settle regulatory and conduct issues to around £22 billion since 2011,” Mould said.