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PPI: the weight behind banks' necks

Despite coughing up £23bn to atone for PPI mis-selling, it's emerged the UK's banks might only be half way there.

by Adam Gale
Last Updated: 19 Apr 2016

‘The Libor fixing scandal was every chairman’s nightmare,’ former Barclays chairman Marcus Agius told MT last year. Scandals are supposed to be that way – rare enough and severe enough to cause anxiety at the highest level of an organisation. But since the financial crisis, the banking sector has been awash with scandal.

On top of Libor and toxic subprime derivatives, there’s been Forex-fixing, the flash crash and, of course, PPI. The mis-selling of credit insurance was the least dramatic of all the recent scandals. It didn’t cause any crises or panics (the unmitigated fury directed at cold callers aside), largely because its impact was spread over huge numbers of customers over at least two decades.

This slow-growing malignancy has also proven one of the most difficult to kill. Banks are still putting asides huge sums of money to deal with it (£193m in its most recent results for the Co-Op Bank, £500m for RBS and a staggering £4bn from Lloyds). The total figure paid out since 2011 is now £23bn according to the FCA.

It looks like the worst may not be over. The FT estimates at least another £22bn is still owed, largely because a significant proportion of past pay-outs have been covering lost interest.

An end is perhaps in sight as a result of a proposed deadline for claims in the spring of 2018, but even if that comes into force it will be a long time before every last payment has been made. Financially, it may be healthier for the banks to spread the pain out, but for the reputation of the sector as a whole it would surely be better to get it out of the way as soon as possible.

The banks are spending a great deal of time, effort and money to restore public trust and prevent future scandals - between 2012 and 2015, for example, JP Morgan reportedly hired 13,000 compliance officers (in the absence of an established collective noun, we suggest 'a blockage of compliance workers'). If Edelman’s annual trust barometer is to be believed, it’s starting to work, even if the situation is still far from ideal - trust in banks is now at 51%, compared to 43% in 2012.

The drip feed of ‘city bankers go wild and spend £10,000 on tequila and caviar’ stories (or rather the public’s appetite for them) means restoring banks’ reputations will be hard enough without a constant reminder of past transgressions in every financial report. There’s only so often you can hold your hand up and say mea culpa, after all, before people stop believing that you mean it. 

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