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RBS faces up to £900M new charge from PPI and CYBG expects hit too

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RBS faces up to £900M new charge from PPI and CYBG expects hit too

CYBG PLC faces additional costs from mis-sold payment protection insurance after Royal Bank of Scotland Group PLC said it expected an additional charge of up to £900 million for claims.

On Sept. 4 CYBG said it would update the market as soon as possible on its latest PPI obligations and was seeking to establish an initial cost estimate but that this was "expected to be material." The bank had previously set aside £2.6 billion for PPI mis-selling provisions.

The announcement followed RBS' statement day that it expected the PPI mis-selling scandal to cost it an extra £600 million to £900 million in addition to the £5.3 billion it had previously set aside, £4.9 billion of which has already been spent. The bank said the actual figure would be revealed in its third-quarter results but warned that the volume of claims received in the run-up to the Aug. 29 deadline was "significantly higher than expected."

The bank, which is 62% state-owned, had been forecast to make profits of £2.68 billion for 2019, according to company-supplied consensus estimates. It posted its first annual profits for a decade in 2018 and reported a 130% jump in earnings to £2.04 billion at its first half-year results this year.

Lloyds Banking Group PLC bank has made by far the biggest provision for PPI claims at £20.08 billion and analysts at Goodbody, commenting prior to CYBG's announcement, said they expected both CYBG and Lloyds to announce further costs from PPI claims in the third quarter. Lloyds, which dominates the U.K. mortgage market, said in June that it was receiving 190,000 PPI information requests a week.

Though RBS said it was surprised at the scale of the surge in claims ahead of the deadline, the Financial Conduct Authority said previously that its polling showed 18% of eligible consumers would make a last-minute decision on whether to complain about mis-sold PPI and slightly more than half of those were confident they would complain ahead of the deadline.

Ad campaign

The FCA ran an extensive advertising campaign from two months prior to the deadline, urging consumers to claim money back for mis-sold policies. It said the campaign had resulted in a 269% increase in calls to the regulator compared with the previous eight weeks.

An estimated 64 million PPI policies had been sold, according to the FCA, which were designed to provide cover for loan repayments on credit cards, mortgages and loans if a customer was unable to do so because of sickness or unemployment. However, large numbers of policies were mis-sold, with up to a third deemed useless by consumer groups, leaving holders with valueless cover.

Since 2011 banks have had to compensate customers for mis-sold PPI and S&P Global Ratings said banks' total provisions for mis-sold PPI exceeded £45 billion. This is considerably more than the £36 billion paid out to claimants by banks to date because, said the ratings agency. The figure relates not only to the cost of paying redress but also to administrative expenses.