Barclays bulks up PPI provision by £600 million

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Barclays (BARC) has announced that it will be making an additional £600 million provision for mis-sold payment protection insurance (PPI), and £400 million for interest-rate swaps.

This will bring the cumulative provision to £2.6 billion for PPI and £850 million for interest-rate swaps. Of this, £1.6 billion and £36 million respectively has been utilised as at 31 December 2012.

"The main review and redress exercise will commence shortly and the appropriate provision level will be kept under ongoing review as it progresses," the bank said.

Craig Lowther, managing director of PPI claims company MoneyBoomerang, was doubtful that the end was near for the provisions.

"These latest provisions drive home once and for all the gargantuan scale of the banks' mis-selling to both individuals and [small and medium enterprises]," he said. "We expect provisions for interest-rate swaps, like PPI, to continue to rise over time. The overall provision in 12 and 24 months' time will be a world apart from what it is now. It will be a mirror image of PPI."

So far, HSBC (HSBA) has made provisions of c. £200 million for the mis-selling of interest-rate swaps. The corresponding figure at Royal Bank of Scotland (RBS) is c. £100 million. Lloyds Banking Group (LLOY) has not made any provisions at all. This is a far cry from the charges of £5.3 billion at Lloyds and £1.7 billion at RBS - and counting - for PPI redress.

Lowther acknowledged Barclays was taking the lead on meeting its obligations, was proactive in the claims process and was putting many other banks to shame, but cautioned: "There remains a deep-seated intransigence at many banks, an instinct to delay rather than play ball."

Bank results preview

Barclays will be the first bank to report its fourth-quarter results on 12 February, when chief executive Antony Jenkins will also outline his vision for the future direction on the bank.

"We do not anticipate radical restructuring, but rather thoughtful ambition to deliver above cost of capital returns over time, with a focus on costs, improving returns in the investment bank and rebuilding the reputation of the firm," stated Chris Manners, analyst at Morgan Stanley.

He had a 'buy' recommendation on the stock, attributed to better investment-banking revenues than its peers, a "cheap valuation, potential to optimise [investment-bank] returns and to refocus on costs."

RBS will be next to report on 28 February.

The bank is set to report another big loss for the fourth quarter of 2012, with Investec's Ian Gordon predicting £1.7 billion of net negative exceptional items and a net asset value per share that should fall to around 460p. He warned: "Normality may still not return before 2017" and had a 'sell' recommendation on the stock.

Manners rated the RBS a 'hold', explaining: "Although [we] see value at current levels, the prospect of dividends and exit of UK government appears somewhat far off."

Next will be Lloyds on 1 March. Manners is "cautious" ahead of the results: "We still expect pressure on net interest income as loan balances shrink, with margins stable, which could disappoint some expecting strong margin expansion," he commented. "We are equal-weight as tail risks from funding and asset quality appear much reduced so we expect a continued focus on 'core' earnings power in 2015+."

This will be followed by HSBC on 4 March. Manners has an 'overweight' rating on the stock on the prospect of "cost-cutting execution and an opportunity to take share in Asia". However, he is 'neutral' on the stock going into the results, explaining that despite cost discipline, "impairments may tick up from a benign third quarter".

Gordon believes that Standard Chartered (STAN), which is due to report on 5 March, offers "a safe haven from ongoing UK customer redress issues". He had a 'buy' recommendation on the stock.

Manners was more pessimistic: "We expect little in the way of surprise after the pre-close laid out the key line items. We are equal-weight as we see the stock as fully priced with potential for higher wholesale impairments."