More bad news has surfaced for National Australia Bank Ltd. (ASX: NAB) and CYBG Plc
(ASX: CYB) in the UK, with provisions for payment protection insurance (PPI) mounting.
CYBG is the bank behind the UK’s Clydesdale & Yorkshire Banking Group and was, until 2016, owned by NAB.
NAB divested the business by selling shares to ASX and international investors and by guaranteeing an amount of cover for future claims made against the UK bank for issues that were incurred while NAB was its owner.
NAB’s track record in the UK and with CYBG is checkered, with Australia’s fourth largest bank incurring billions of dollars of provisions for commercial loans, as well as poor conduct, around the time of the global financial crisis.
PPI was an insurance policy sold to people who received loans, credit cards or other forms of debt. It was designed to cover the debt if a person got sick, injured or even become unemployed. These policies are believed to have been mis-sold by staff who were incentivised to push it on clients.
More Provisions
This morning, CYBG announced that it expects to increase the provision for the legacy PPI costs, as at 31 March 2018, by £350 million — subject to a finalisation of its half-year financial results.
NAB previously put in place measures to help CYBG with legacy PPI claims made by its customers and will front up for some of today’s increased provisions.
CYBG said in its ASX announcement: “Under the terms of the conduct indemnity deed with National Australia Bank the remaining undrawn indemnity amount of £148 million will be fully utilised, with the balance funded by CYBG.”
CYBG will incur a cost of £202 million (pre-tax) in its half-year financial results ended 31 March 2018. The provision will see the bank’s regulatory capital buffer, known as the CET1 Ratio, decline by approximately 1%.
According to Clyesdale Bank’s website, UK residents still have at least another year to complain about PII products sold to them.
“The Group has been operating two PPI programmes concurrently over the past six months, comprising the proactive customer contact remediation exercise and customer-initiated new complaints handling,” CYBG announced.
The cases in the remediation program have been reviewed but the final cases were more complicated and time-consuming than CYBG had hoped.
Within the customer complaints files, CYBG said it has experienced, “a sustained period of elevated complaints” during the half-year in question, receiving some 59,000 complaints. The bank pointed to media coverage and FCA advertising as the catalysts.
Of the £350 million provision, £186 million will be allocated towards 110,000 additional customer-initiated complaints before the August 2019 cut-off.
Takeaway
Despite today’s announcements, CYBG says it maintains a, “significant buffer to its regulatory capital requirement.”
However, investors do not appear enthused by today’s announcement, with the CYBG share price having fallen 5% before lunchtime, according to Google Finance. Meanwhile, NAB shares are trading slightly lower.
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