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PPI comes back to bite RBS one final time

by LLB Editor
4th Sep 19 10:03 am

Just when investors were wondering whether the worst of RBS’ regulatory woes were behind it, the bank has confirmed that a final rush of PPI claims applications ahead of the 29 August deadline has forced it to take another big provision to cover compensation claims, says Russ Mould, AJ Bell Investment Director.

“The additional cost of £600 million to £900 million will take the total set aside to meet claims to between £5.9 billion and £6.2 billion and take the total that RBS has paid out to settle regulatory and conduct issues to around £22 billion since 2011.

“Investors will be disappointed as the bank only booked £65 million of litigation and conduct charges in the first half of the year. That helped to boost stated pre-tax profit to £2.7 billion in the first six months of 2019 compared to £1.8 billion a year ago.

“However they may not be that surprised. The FCA pushed the final PPI claims deadline very hard and a final rush of customer filings was always a possibility. That may help to explain why RBS shares were trading at such a big discount to their stated tangible asset value per share of 290p – although wider concerns over the state of the UK economy, an increase in bad loan impairments across all of the major banks (albeit from low levels) and pressure on lending margins as central banks start to cut rather than hike interest rates are also a factor here.”

2019E 2018 2019E 2019E
P/E Price/book Dividend yield Dividend cover
HBSC 10.5 x 1.02 x 6.8% 1.41 x
Lloyds 6.6 x 0.95 x 6.8% 2.22 x
Standard Chartered 10.7 x 0.66 x 3.2% 2.89 x
Royal Bank of Scotland 6.5 x 0.63 x 7.1% 2.16 x
Barclays 6.4 x 0.50 x 5.4% 2.89 x


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