The Price of Misconduct - £53BN and Rising!

New City Agenda has issued a report that states that lawsuits and misconduct fines have cost Britain's largest retail banks and customer-owned lenders almost £53BN over the past 15 years.

Reuters quotes John McFall, a director of New City Agenda and former Treasury Committee chairman:

"The profitability of UK retail banks has been imperilled by persistent misconduct.

This has made every citizen poorer through our pension funds and our ownership of the bailed out banks." 

I am more than certain that the costs will keep rising!

CPP The New PPI

It seems that there has been another mis-selling scandal, akin to the PPI one, wherein people are entitled to seek redress, this being CPP (Card Protection Plan).

However, according to the Martin Lewis (writing in the Telegraph) up to five million people may be missing out on the compensation because they confuse the issue with PPI and throw away a legitimate ‘‘fill this in to get your money back’’ form for junk mail.

Since February more than seven million people have been sent CPP redress letters, dating back to policies since 2005. Many were under names such as CardGuard, Card Protection Plus, Card Safe or Egg Emergency Cover.

Martin Lewis estimates that £900 million remains to be claimed, with a deadline of August 30 looming on the horizon.

I wonder if there is any financial product in this country that hasn't been mis-sold?

Government Sells 7.8% of Lloyds - Legalised Theft

The government has today announced that it has sold 7.8% of shares in Lloyds Banking Group, at 75.5p per share.

The government has now sold 36% of its original stake in Lloyds, which now stands at 24.9%.

Chancellor of the Exchequer, the Rt Hon George Osborne MP, said:

"I can confirm this morning that we have sold a further £4.2 billion of shares in Lloyds Banking Group at 75.5p a share, taking the taxpayer’s stake down to below a quarter of the bank. This represents good value for the taxpayer and the money will again be used to reduce the national debt.

This is another step in the government’s long term economic plan to deliver a more secure and resilient economy. It is another step in repairing the banks, in reducing our national debt and in getting the taxpayer’s money back."

The taxpayer paid an average of 73.6p per share when it was forced to rescue Lloyds in 2008. Thus the "profit" is little more than 1.9p per share, or £106.4M.

The sale comes at a time when Lloyds has been exposed as unilaterally reducing payouts to people who were mis-sold PPI. The bank’s behaviour has been described by one expert as “a scandal coming out of a scandal”.

An investigation by the BBC has found evidence to suggest that in some months the bank provided more than one in four PPI claimants – a figure that the bank disputes – with “alternative redress” – an obscure loophole that allows Lloyds to assume victims who were wrongly sold single-premium PPI policies on loans would have bought a cheaper regular premium PPI policy. Single-premium policies involve one-off payments, rather than monthly outlays.

Claims management companies told BBC Radio 4 that when they challenge Lloyds’ reduced offers on behalf of clients, the financial ombudsman has overruled the bank in every single case.

Cliff D’Arcy, an expert on the PPI scandal, said he believes Lloyds has reduced payments by tens of millions of pounds over the past year. He is quoted by the Independent:

“Frankly, I’m amazed that this problem has existed throughout the last year and hasn’t emerged into the light.

What’s happening here is a taxpayer-sponsored bank depriving taxpayers of their rightful compensation by using a loophole. It’s a scandal coming out of a scandal.”

The MP John Mann, who sits on the Treasury Select Committee, said:

 “This appears to be legalised theft and yet again it shows Lloyds as the unacceptable face of banking. This raises major questions for the Treasury, which has a multibillion-pound stake in the bank. ”

The government may be itching to relieve themselves of their stake in Lloyds, lest other scandals emerge that destroy value.

Lloyds Banking Group's £10BN PPI Bill

Lloyds Banking Group's bill for PPI mis-selling claims has risen to almost £10BN, after the group raised its provision for compensation payments by another £1.8BN.

However, the group still expects to make a "small" profit for 2013; the projected "underlying" profit being around £6.2BN.

By happenstance it is now preparing to sell some of the 33% shareholding that rests in the hands of the taxpayers, back to the taxpayers. The earliest the sale could be would be March this year, as and when the 2013 audited results are released.

Antonio Horta-Osorio, chief executive of Lloyds, is quoted by the Telegraph:

"Our profitability, despite legacy issues, is testament to the strength of our business model and the commitment of our people, and has enabled the UK government to start to return the bank to full private ownership."

Wheatley Lambasts Outrageous PPI Mis-selling

Martin Wheatley, the CEO of the Financial Conduct Authority (FCA), is currently appearing before the Treasury Select Committee. He is less than impressed with the fallout from the PPI mis-selling scandal and the way that the banks are handling complaints.

Currently the FOS is upholding 90% of PPI mis-selling cases referred to it after they had been rejected by the banks.

Wheatley says it is "absolutely not acceptable" and that it is "outrageous" that the number upheld by the FOS is so high. He stated that the FCA has been looking into how banks handle complaints, as per the Telegraph:

"We have taken action and we will take more action and we will continue to look at how banks handle complaints. 

We've got two large investigations underway and have two cases where we have issued strong fines."

Sadly PPI mis-selling is but one of many areas where Britain's financial services industry mired itself in its own shit.

Banks Embroiled In Another Mis-selling Scandal

As loyal readers know, I have on numerous occasions noted that the financial services industry in the UK has tarnished its image because of its greed and corruption, and seems intent on bringing about its own self destruction.

Today we see yet another example wherein its greed has been exposed because of yet another mis-selling scandal.

This time the mis-selling relates to card protection and identity theft insurance products by CPP Group. The BBC reports that UK banks have agreed to set up a £1.3BN fund to compensate the victims.

The Financial Conduct Authority (FCA) said that customers had been "given misleading and unclear information about the policies".

CPP Group and 13 banks and credit card firms will pay for the compensation.

Some seven million customers could now expect to receive letters from CPP from 29 August 2013, explaining how to claim compensation. Victims will receive 8% interest on the amounts being reimbursed.

During the period of mis-selling between January 2005 and March 2011, CPP sold 4.4 million policies and generated £354M in gross profit. A further 18.7 million policies were renewed during the same period, generating an income of £656M.

Many customers were put in contact with CPP when they rang a number on their new bank card in order to activate it. Many thought they were talking to their bank, but they were in fact being put in touch with a salesperson from CPP.

CPP then used the opportunity of the call to offer card protection insurance. If the customer bought the product, the bank got a commission.

CPP Group sold a card protection product costing about £30 a year, that was designed to cover losses if a card was lost or stolen. It said customers would benefit from up to £100,000 of insurance cover, but customers were already covered by their banks. Generally, cardholders are not liable for unauthorised card payments on lost or stolen credit and debit cards; ie the product was unnecessary.

Needless to say we can expect to see the "ambulance chasing" financial compensation firms jumping on this bandwagon and offering to reclaim victims' money back in exchange for a percentage; which of course is completely unnecessary,as the victims can reclaim the money themselves.

Ombudsman Swamped By PPI Claims

Unsurprisingly, the PPI mis-selling scandal (one of the many scandals that have destroyed the reputation of the UK's financial services industry) continues to hit the headlines.

The financial ombudsman service (FOS) reports that it is taking on 2,000 new cases a day, with numbers rising at "unprecedented" rates.

The BBC reports that the FOS received 211,885 new PPI complaints in the second half of 2012. These accounted for nearly 75% of the 283,251 new complaints sent to the ombudsman during the six months.

The average that a successful claimant receives in compensation is around £3K, representing a gross cost to UK banks of £15BN.

Lloyds TSB Bank had the highest number of PPI cases referred to the ombudsman of any institution during the second half of the year, but the ombudsman found in the customers' favour in 86% of the cases against the bank.

Needless to say, as the number of referrals to the FOS rises, so does the length of time it takes for the ombudsman to make a determination. It seems that the delays are also increasing because some companies are causing unnecessary delays.

Natalie Ceeney, chief financial ombudsman, is quoted by the BBC:

"As the complaint levels show no sign of slowing, consumers are increasingly having to wait longer to get their complaints sorted - with many businesses still continuing to cause unnecessary delays.

Where businesses have shown a real commitment to better customer service and diligent complaints handling - including actively engaging with the ombudsman - cases are resolved more quickly and easily, to the benefit of everyone."

None of this is surprising, those who were sold PPI will see this as an opportunity to try to obtain a refund (irrespective of whether they were mis-sold PPI or not) and the banks will do everything they can to try to reduce the costs of the claims.

That being said, had the banks not incentivised their staff to sell policies that were in many cases clearly inappropriate to people who didn't need them/couldn't claim on them when they needed to, then this entire mess could have been avoided.

The greed of the banks is now being repaid by the perspective that the banks' customers have that there is "free" money to be made.

As the old saying goes, "what goes around, comes around".

FSA Faces Legal Action

Two weeks ago I berated the toothless and useless FSA for kowtowing to the banks and giving them a "get out of jail card" for the rate swap mis-selling scandal, in the form of a £10M ceiling on the size of swaps for which compensation can be claimed.

The government, fearing that it will be associated with the failure of the FSA, has finally woken up to this mess. Greg Clark, Financial Secretary to the Treasury, has told the FSA that banks must allow businesses that could have been mis-sold an interest rate swaps to cease making premium payments.

The Telegraph reports that Clark privately told the FSA that its finding that more than 90% of interest rate hedging products had likely been mis-sold to SMEs was a “game changer”.

By way of "coincidence" the FSA faces legal action over its compensation scheme.

Law firm Manches is preparing to launch a judicial review against the FSA, which it claims “acted unreasonably in establishing and changing the criteria for businesses to be within the review”.

In particular, Manches will challenge the introduction of the £10M cap. Rich Eldridge, a partner at Manches, said the FSA had used its powers “improperly”:

“The cap is illogical. An indicator of mis-selling is a swap for more than the loan. If a business with a loan of £9m is sold a swap of £9m it can be within the review. If the same business is sold a swap of £11m it cannot. The £11m swap is worse as the swap is more than the debt, but the £10m cap allows the bank to escape the review procedure for this swap.” 

The sooner we are rid of the ineffective and useless FSA the better!

Barclays Ups Mis-selling Provisions By £1BN

Barclays, the bank with a finger in every pie, has announced that it will increase its mis-selling provisions by another £1BN. The provision for mis-selling of payment protection insurance (PPI) will be increased up by £600M and the provision for the interest rate swaps by £400M.

Total provisions for mis-selling now stand at £2.6BN.

Give a man a gun and he can rob a bank, give a man a bank and he can rob everyone.