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RBS appears most exposed by fresh mis-selling banking scandal, says Investec

RBS is the most likely big bank to need to put aside extra provisions to compensate customers for mis-selling of interest rate swaps, reckons City firm Investec. The rate swap issue is the latest mis-selling scandal to hit the  banking sector - still reeling from the PPI debacle.
RBS appears most exposed by fresh mis-selling banking scandal, says Investec

RBS (LON:RBS) is the most likely big bank to need to put aside extra provisions to compensate customers for mis-selling of interest rate swaps, reckons City firm Investec.

The rate swap issue is the latest mis-selling scandal to hit the  banking sector - still reeling from the PPI debacle.

Such interest rate hedging products (IRHP) were designed to protect against rising interest rates but when they fell - customers were landed with a big headache and big bills.

The Financial Conduct Authority (FCA) set up a scheme to compensate victims around a year ago and today released details - showing that only half a million pounds had been paid out by the big banks in compensation so far.

Only ten cases have so far been settled at a cost of £500,000 of a total figure for provisions made by the sector of around £3bn -  so around 0.016% of the potential amount has been paid out. 

"Today’s update from the FCA on banks’ reviews of sales of interest rate hedging products is not conclusive, but it APPEARS to show RBS in a poor light, with 10,528 claims under review – more than Barclays (3,436), HSBC (3,309), Lloyds (2,672) and “others” (905) all taken together," notes analyst Ian Gordon, who repeats his 'sell' rating and 340p price target on RBS.

In contrast with the number of claims under review, Barclays appeares to be the best provided for, having put £1.5bn aside, RBS has £0.75bn and Lloyds (£0.4bn).

However, Gordon notes that the review process into the IRHP claims is very complex.

"The ultimate provisioning requirement is not a straight read-across from the number of cases. 

"Moreover, ALL banks could yet be exposed to fresh charges arising from “consequential loss” assessments."

The banks have hired 2,800 staff to review the thousands of claims and the FCA expects most customers will be given a result by the end of the year.

It comes on the day new figures from the independent Financial Ombusdsman show more than 266,00 PPI (payment protection insurance) claims were referred to the Ombudsman this half year - 26% more than the previous six months.

These were claims that the bank either rejected or did not resolve.

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