The bar has come down. It is all over. The Terminator — used in TV ads for months — has been terminated. The deadline for payment protection insurance claims has passed. The claims were never for the insurance itself, which frequently turned out to be valueless, but against the banks for selling PPI in the first place.
As an example of the banks’ ruthlessly cynical behaviour towards their customers, this is a peach. Many borrowers believed they would be covered if they were unable to maintain credit repayments (the clue was in the name) and they were as likely to study the small print as we do the terms and conditions when buying a mobile phone.
When the scandal started unfolding, the banks cited their own protection in the small print to resist claims. Only when Lloyds Bank unexpectedly abandoned its defence did the floodgates open. It became impossible for the banks to distinguish between genuine PPI claims and those from the growing army of fraudsters, cold callers and claims management companies.
The total cost to the banks has now passed £48bn, including around £12.5bn spent on their administration. The claimants’ intermediaries will have skimmed billions from the £36bn paid out. It is all very shocking, but PPI compensation has helped millions of people during hard times. Lloyds alone had settled with 8.6m customers by the end of June.
The distortion to the economy as a result of quantitative easing has boosted the value of assets mainly held by the rich and well-to-do, but has done little to encourage them to spend. In contrast PPI payments, a sort of QE for the masses, have mostly gone to those who spent it. One consequence was the appearance of new motors on the streets. As the PPI payments have tailed off, car sales have suffered.
Between them, Lloyds and Royal Bank of Scotland have paid out more than half the claims by value, so considering the state’s holdings in the two banks, around £20bn might be thought of as a sort of targeted tax cut.
As for the banks themselves, Jonathan Davidson from the Financial Conduct Authority doubts whether they have really learnt much from the PPI episode. When times get tough, he says, “they take more risks in their treatment of customers”.
This behaviour does not produce long-term gains for their shareholders, either. QE, with its consequential tiny interest rates, has destroyed the banks’ profitability, and Lloyds shares are much the same price today as they were a decade ago after the financial crisis. It seems the only true beneficiaries are the top bankers themselves.
With Amigos like these . . .
They got frightfully upset at Amigo Holdings at the suggestion here that the business of getting your mate to guarantee your debt had more than a whiff of moral blackmail. Oh no, everyone knew exactly what a guarantee meant, they said, and much of the criticism was “urban myths”.
That was in March. This week things looked rather less friendly, with results as horrible as the concept behind the company. Among other things, it is encountering “challenges within collections” as it tries to enforce payments on loans bearing interest rates up to 49.9 per cent. Well, surprise, surprise.
The shares, floated at an absurd 275p 15 months ago, were 145p in March, and 70p after this week’s news. Those in charge at the time have gone, and the new chief executive has to work out how a business perfectly designed to drive a wedge between friends can, or indeed should, have a future. The bankers at JPMorgan Cazenove who brought this wretched business to market should be ashamed of themselves.
No luck at Mukluk
The North Slope of Alaska transformed BP, which this week announced that it was selling up for $5.6bn. Prudhoe Bay has produced 13bn barrels so far, and at its peak was the biggest producing field in the US. Yet at one stage it looked as though it would be dwarfed by a neighbouring prospect. Sohio, a BP associate, paid $1.5bn for the lease and built a $100m gravel island in the Beaufort Sea to drill it. The seismic survey looked lovely, but the oil had long gone, making Mukluk the world’s most expensive dry hole.