Compensation claims from people who were mis-sold payment protection insurance (PPI) are coming in thick and fast across the banking sector. RBS is the latest bank to show the strain, posting a £1.38bn loss in the third quarter of this year, which takes losses so far in 2012 to £3.4bn. A bitter pill for RBS bosses to swallow when the bank made a £1.2bn profit in the same period last year.
The bank has paid out a billion pounds' worth of claims so far but the bank admitted on Friday that the cost could rise even higher. The extra £400m takes RBS’s total compensation fund to £1.7bn. Chief executive Stephen Hester reckons the extra tranche will help the bank ‘get ahead’ of the issue.
Still, PPI was not the only cause of the huge Q3 loss. A controversial new accounting regulation which requires banks to pay a charge against their own debt has cost RBS £1.5bn too. The bank said that if the effect of the compensation fund and the charge were set aside, it actually made a profit of £1.1bn. That is little consolation to shareholders – a loss is a loss. Hester added that, despite tough economic conditions, ‘underlying performance has already improved enough to be generally comparable to peers.’ Not difficult when they’re all paying out oodles for Libor and PPI though, eh?
And speaking of Libor, RBS could be next on the block over the scandal. Hester says the bank will begin ‘settling’ Libor investigations before its full-year results are released, and that he would be disappointed if the bank could not settle with at least one of the regulators before the full-years. He said ‘We are up for settling with each and every one of them…we have to dance to the tune of the relevant regulators.’ Barclays was fined £290m by US and UK authorities over Libor back in June, so depending on the outcome of the investigation, RBS could face a similar payout.
Still, it seems shareholders are not too bothered about these ‘one-offs’. Even at the news of such an enormous loss in a single quarter, shares remained steady.