The British banks such as Lloyds, Barclays and RBS are still unable to banish the headache of colossal financial penalties despite much of this misconduct occurring a decade ago or even longer.
Lloyds alone has been hit by an eye-watering £19.4bn bill related to claims for mis-sold payment protection insurance (PPI) in years gone by, including an extra £750m put away in 2018 alone. As the biggest provider of this product the figure dwarfs those of its rivals, although the £9.6bn and £5.3bn that Barclays and RBS have also been whacked by doesn’t exactly represent small change.
Good news
These FTSE 100 stocks, then, would have celebrated latest Financial Conduct Authority (FCA) data which showed while PPI bills are still mounting in ahead of the August claims deadline, the number of new consumer complaints has slowed in recent months.
According to the body, some 1.58m PPI-related claims were filed in the second half of 2018, down 8% from the prior six-month period.
Complaints for PPI still account for four-fifths of all complaints to the FCA, making it by far the most criticised financial product by the British public. But signs the fresh claims stampede that appeared a year or so ago has begun to abate should be greeted with cheer by Lloyds et al, particularly given the pressure this particular misconduct saga has put on their balance sheets and therefore their perceived ability to pay big dividends.
Bad news
It hasn’t all been good news for the banking sector in recent days, though. In a recent piece, I warned of the dangers that the immense political and economic uncertainty Brexit is causing, a situation that’s smacking revenues and increasing impairments for the country’s lenders. And fresh figures from the Bank of England highlighted this problem perfectly.
According to Threadneedle Street’s most recent Credit Conditions Survey, default rates “increased significantly” in the three months to March, thanks to a surge in defaults on credit cards. In the first quarter, such defaults ballooned by 22.9%, up from 12.7% in the final quarter of 2018.
The Bank of England said “lenders expected default rates for total unsecured lending to decrease slightly in quarter two,” though given the prospect of how long it’ll take for Parliament to decide when (or if) it wants to exit the European Union, not to mention on what terms it will leave the club, the outlook for the domestic economy remains extremely muddy. And therefore any drop in default levels is a call that’s very difficult to make, in my opinion.
There’s no doubting Barclays, RBS and Lloyds are extremely cheap stocks, all three sporting forward P/E ratios below the accepted bargain benchmark of 10 times. Such a low reading is a reflection of these firms’ exceptionally-high risk profiles. As the uncertainty surrounding these UK-focussed stocks lingers, I’m happy to give them a miss.