PPI fund could be topped up by £400m as banks prepare to report results
Lloyds could set aside millions more to address payment protection insurance (PPI) misselling claims this week when it reports results alongside banking peers Barclays and RBS.
Analysts are waiting to see whether UK banks report higher costs linked to compensation for PPI after a new ad push by the Financial Conduct Authority was launched ahead of next year’s claims cut-off date.
“In an ironic unhelpful twist of fate the bank-funded Arnold Schwarzenegger-esque advertising campaign for the August 29 2019 PPI claims deadline appears to have brought refund request volumes back,” UBS analysts warned.
Lloyds Banking Group is expected to top up its PPI provisions by as much as £410m in the second quarter alone, according to forecasts by Morgan Stanley.
It will add to the £90m set aside for PPI claims cost in the first three months of the financial year, which brought its total bill for the saga to an eye-watering £18.8bn.
However, it still managed to raise bottom line profits by 23% to £1.6bn over the first quarter.
The bank has been undergoing an overhaul of its workforce and branch network, having most recently announced plans to cut 450 jobs mainly affecting back office staff, while creating 255 new roles.
Consensus figures are now pointing to a slight drop in underlying pre-tax profits coming in at £4bn for the half-year, down slightly from £4.5bn a year earlier.
Barclays itself already took a £400m PPI charge in the first quarter, while its half-year results are also likely to reflect a “modest restructuring expense” as a result of completing the ring fencing of its retail banking operations, UBS has said.
But its investment banking operations will be under the microscope, having attracted more attention in the wake of activist investor Edward Bramson taking a 5% stake in the lender.
Analysts at UBS said it will be important for Barclays to show that it had a strong first half, given that the period is usually stronger for investment banks - without which there will be little hope for a rally in the remainder of the year.
The lender has also put some legacy issues to rest in recent months, notably a 2bn US dollar (£1.5bn) settlement with the US Department of Justice (DOJ) in April related to the scale of mortgage backed securities in the lead up to the financial crisis as well as an investigation over chief executive Jes Staley’s attempt to unmask a whistleblower.
When stripped of litigation and conduct costs, half-year pre-tax profits at Barclays - excluding litigation and conduct charges - are set to come in at around £3.2bn.
Total group attributable profit for the six months is set to come in at £125m, swinging from a loss of £1.2bn a year earlier.
RBS shareholders will be poised for news over when it will restart dividend payment after reaching its own long-waited 4.9bn US dollar (£3.7bn) settlement with US regulators over claims it mis-sold mortgages in the run-up to the financial crisis.
It has been 10 years since the bank paid a dividend to shareholders.
While the bulk of the US settlement was covered by existing provisions, the bank said it would take a 1.44bn US dollar (£1bn) hit in the second quarter results, while it is expected to log £347m in restructuring charges as part of cost reduction efforts, according to UBS.
Consensus estimates are for attributable bottom line profits to come in at £51m, down from £939m a year earlier, after logging £1.2bn in litigation and conduct costs in the second quarter alone.
RBS’s net interest margin may separately come under pressure, having attempted to raise mortgage market rates in a competitively-priced market, while questions are likely to arise around business lending given recent difficulties faced by high street retailers, contractors, house builders and care homes.
Investors will also be keeping an eye out for any succession planning following the departure of finance chief Ewen Stevenson at the end of May, which may have impacted the timing of a much-anticipated replacement of chief executive Ross McEwan.
The following events are due to take place this week:
Interims: Hiscox, Keller, Pendragon, Reach, Senior.
Trading updates: Cranswick, CYBG.
AGM: National Grid.
Bank of England releases its Money and Credit report.
Interims: BP, Centrica, Greggs, Just Eat, Provident Financial, Rentokil Initial, Shire, Standard Chartered, Taylor Wimpey, Travis Perkins, Weir Group.
Trading updates: Thomas Cook, Greencore.
Interims: Aggreko, BAE Systems, BBA Aviation, Capita, Dignity, Direct Line, Lloyds Banking Group, Man Group, Rio Tinto, St James Place.
Trading update: Next.
Nationwide Building Society publishes its July house price index.
Markit/CIPS manufacturing sector purchasing managers’ index (PMI) for July.
Interims: Aviva, Barclays, Inmarsat, LSE, Merlin Entertainments, Portmeirion, Rolls-Royce, RSA, Serco.
Trading updates: Mitchells & Butlers, Sage.
Markit/CIPS construction sector purchasing managers’ index (PMI) figures for July.
Bank of England announces its latest interest rate decision and publishes the quarterly inflation report.
Interims: Cobham, IAG, Millennium & Copthorne, Mondi, RBS, William Hill.
Trading update: Pets at Home.
Markit/CIPS services sector purchasing managers’ index (PMI) figures for July.