Comment: PPI is fast becoming the No1 banking scandal

Terry Murden
Terry Murden
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PAYMENT protection insurance is turning out to be one of the biggest among a whole series of financial mis-selling scandals and to make matters worse, the banks may be withholding the true scale of their liabilities.

Could they be trying to protect their share prices which are already under water and vulnerable to taking another dive if investors get the full picture?

Lloyds’ exposure is now a whopping £5 billion, almost half the £11bn set aside across the whole banking sector. JP Morgan estimates it could hit £15bn, while other sources say it could go beyond £20bn.

Evidence that the banks are refusing to admit their full liabilities is based on the staged announcements at every trading update. To confess the full whack in one go would have the markets worrying that the banks could not cope with such colossal payments.

The scandal is overshadowing progress on the trading front, certainly at the part-nationalised banks. After stripping out the cost of PPI, Lloyds doubled its underlying profit to £840 million in the third quarter, a result of reducing bad debts and narrowing losses from its non-core businesses.

Royal Bank of Scotland today will also show an operating profit which will translate into a bottom line loss due to its continuing liabilities.

The various scandals, including fines due on Libor-rigging, will depress share prices of both banks for some time, delaying the day when the taxpayer gets his money back.

Antonio Horta-Osorio and Stephen Hester, chief executives at Lloyds and RBS respectively, are left in the role of apologists for the misdemeanours of their predecessors while attempting to take credit for the improvements they are undoubtedly making.

Recovery still very much in the balance

Britain’s emergence from recession has encouraged economists to believe the Bank of England’s monetary policy committee will stay its hand on further quantitative easing next week.

The 1 per cent rise in third-quarter GDP was above forecasts and the 
nine-member committee appeared to have enough leeway not to add to the £375bn already pumped into the economy.

But a weak manufacturing sector is adding to fears that the recovery is struggling to take hold and that Britain could slip back into recession if demand fails to materialise.

Predicting outcomes on such small margins is a difficult business but the volatility of economic performance has been sufficient to persuade dome analysts to change their forecasts.

The arguments for perhaps another £25bn may well revolve around the need to act now before the winter months threaten a further slowdown in construction and industry generally.

A poor set of figures for the services sector early next week may be enough to swing the balance against the status quo but it is likely to be a close call.