I felt a bit of a fool the other morning. No doubt there are some who argue that this should be a perpetual state of affairs for me, but the specific reason was that on Friday someone had asked me about Lloyds Banking Group (LLOY) shares and in the light of the Royal Bank of Scotland (RBS) and shocking CYBG (CYBG) PPI updates, I said something along the lines that 'if Lloyds had something material to say then surely it would have said it by now'… Well clearly I overestimated not just the efficiency of Lloyds Bank corporate function (versus a very soft peer group of RBS and CYBG let’s face it) but also the equivalent at Barclays (BARC) as both banks have puckered up some more thoughts on the shocker for the UK financial system called PPI...
Apparently the cumulative payout now by UK Banks Inc could be in excess of £50 billion, which is a very decent chunk of change at a time when geek issues such as the shape of the yield curve as well as the generally decidedly patchy economic backdrop are hardly helping out the sector. Lloyds observed on Monday that 'the Group now estimates that it will need to make an incremental charge for PPI claims, in addition to the provisions to 30 June 2019, in the range of £1.2 billion to £1.8 billion in its Q3 Interim Management Statement'. Now that is a decent chunk of change, has induced a pulling of the remaining share buyback it hoped to do this year and has also tweaked down its capital ratios and return on equity hopes. Barclays made an akin disclosure, albeit it waited until the slightly dodgy time of 4.30pm to do so, observing that it 'expects to increase its provision for PPI redress in its Q3 2019 Results by between £1.2bn and £1.6bn' which is just a little bit larger than the sub £400 million level of outstanding provisions it still had on its balance sheet.
So a decent shag off in both of their share prices then just to compound my embarrassment? Er...actually not. Even though the sums involved are quite striking, two aspects are very apparent. The first is that the 'Arnie talking head' campaign has been fantastically successful in rallying any Tom, Dick or Sally to chuck in a claim. I had to smile when Lloyds dutifully noted that 'the quality of these complaint volumes remains uncertain...' because the undoubted reality is that, whilst PPI has been a huge own goal for the embattled banking system, everyone in the country has got countless calls to their mobile pestering them about the potential to claim. So a large proportion I reckon will be extreme chancers, rolling the dice at zero cost ('one signature only required and we will do the rest') to see if they can fund Christmas 2019 in one fail swoop. Even I tried a year plus ago. I knew the chances of me having any in reality were somewhat low but I duly signed a form...and the three providers who managed to get me not to be rude to them on the phone call came back with the same nul points comment.
The other aspect is that this is it. Whilst the banks do have a litany of other issues overhanging them, PPI now ex working through the above is done and dusted. You know the way that shares rise on the last profit warning showing everything is sort of factored in? Well this is how I am thinking about the banks – as I sort of already recently said. Now, I just wish those hapless life insurance review people would stop calling my mobile...
Filed under: Barclays, Lloyds, Muddy Waters podcast, Xaar, Diversified Gas & Oil, Wm Morrison
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