UK banks face 5 bln stg protection insurance hit

LONDON, Oct 27 (BestGrowthStock) – Britain’s banks could have to pay
out at much as 5 billion pounds ($7.9 billion) to compensate
customers who accuse them of mis-selling insurance policies
after a U.S. rival warned it faces a big hit.

Britain’s competition watchdog has for several years been
probing the possible mis-selling of payment protection insurance
(PPI), which typically covers a purchase in case the buyer of a
product becomes sick or unemployed.

Bank of America (BAC.N: ) last week took a $592 million
reserve related to future payment protection insurance claims.

Big UK banks are likely to be even more exposed.

Britain’s competition watchdog has estimated that customers
were being overcharged by over 1.4 billion pounds a year from
the sale of PPI, and revenues from the sales have plunged since
regulators stepped up scrutiny on sales practices.

Lloyds Banking Group (LLOY.L: ) and the next four biggest UK
retail banks could have to pay out 5.1 billion pounds to
compensate customers under a worst case scenario for them,
analysts at Morgan Stanley said on Wednesday.

The five banks will have to pay out 2.6 billion pounds under
a “base case” scenario — a manageable cost for the industry,
according to Morgan Stanley.

In August the Financial Services Authority (FSA) introduced
proposals for banks to handle PPI complaints and redress
customers fairly where appropriate. The British Bankers’
Association this month brought a judicial review of whether the
FSA can apply new standards to old sales.

There are 12 million outstanding PPI policies, and Morgan
Stanley’s base case cost was based on one-fifth of those making
a claim and almost half of those claims being upheld. Banks
could pay an average of 2,000 pounds for each of those 1.1
million claims, and incur 400 million pounds in administration
costs and fines, it estimated.

Lloyds, 41 percent owned by the UK government, could suffer
a 1.5 billion pound hit under the more extreme scenario, or a
770 million pound hit under the base case, Morgan Stanley said.

Under the base case, Royal Bank of Scotland (RBS.L: ) and HSBC
(HSBA.L: ) could have to pay out about 400 million pounds each and
Barclays (BARC.L: ) and Santander (SAN.MC: ) each face payouts of
just over 300 million, the note estimated.
($1=.6298 Pound)
(Reporting by Steve Slater; Editing by Jon Loades-Carter)

UK banks face 5 bln stg protection insurance hit