The Royal Bank of Scotland is set to announce as much as a twenty-fold increase in the size of its provision against mis-sold interest rate swaps, potentially taking the size of its compensation fund to more than £1bn from the present £50m.
The state-backed lender will set aside at least £500m and as much as £1bn against the cost of providing redress to smaller business customers mis-sold interest rate hedging products.
At the top of the range, RBS's new provision will take the total industry bill for swap mis-selling to more than £2bn, well ahead of most City analysts' current estimates of the cost of the problem.
RBS has so far provisioned just £50m against swap claims, but admitted last month that it would have to increase this figure by a "material" amount after the Financial Services Authority revealed the results of a pilot study that found that more than 90pc of the products had been mis-sold.
Last week, The Sunday Telegraph revealed that Greg Clark, Financial Secretary to the Treasury, had told the FSA he expected banks to stop forcing businesses to make payments on their swaps, saying the findings of the FSA study were a "game changer".
The FSA estimates that from 2001 at least 40,000 interest rate hedges were sold to small businesses, many of whom complain they were never warned about the potential costs they would face if interest rates fell.
More than 1,000 businesses have come forward complaining that swaps sold to them by their lender have left them with thousands of pounds in extra monthly charges and "break costs" of hundreds of thousands or even millions of pounds to get out of the contracts.
Barclays has so far made the largest provision against swap mis-selling claims and has so far set aside £850m. HSBC has made the next largest provision of £130m, while Lloyds has yet to announce a provision, but is expected to say this week that it has set aside a total of about £300m when it reports its full-year results on Friday.
RBS's provision could take the industry bill to just over £2bn, well in excess of the £1.5bn total many analysts have forecast.
However, some derivatives experts believe that the eventual cost of swap mis-selling could rise to more than £10bn and possibly even exceed the £12bn put aside to compensate people caught up in the Payment Protection Insurance scandal.
According to Bully Banks, an organisation founded by swap victims that has more than 1,000 members, about 90pc of interest rate hedging products were sold to businesses by one of the big four banks. A survey by Bully Banks of more than 200 of its members found that RBS was the single biggest seller of swaps to small businesses, followed by Barclays.
Source: http://www.telegraph.co.uk/finance/rate-swap-scandal/9890199/Rate-swap-scandal-RBS-mis-selling-bill-may-exceed-1bn.html
The state-backed lender will set aside at least £500m and as much as £1bn against the cost of providing redress to smaller business customers mis-sold interest rate hedging products.
At the top of the range, RBS's new provision will take the total industry bill for swap mis-selling to more than £2bn, well ahead of most City analysts' current estimates of the cost of the problem.
RBS has so far provisioned just £50m against swap claims, but admitted last month that it would have to increase this figure by a "material" amount after the Financial Services Authority revealed the results of a pilot study that found that more than 90pc of the products had been mis-sold.
Last week, The Sunday Telegraph revealed that Greg Clark, Financial Secretary to the Treasury, had told the FSA he expected banks to stop forcing businesses to make payments on their swaps, saying the findings of the FSA study were a "game changer".
The FSA estimates that from 2001 at least 40,000 interest rate hedges were sold to small businesses, many of whom complain they were never warned about the potential costs they would face if interest rates fell.
More than 1,000 businesses have come forward complaining that swaps sold to them by their lender have left them with thousands of pounds in extra monthly charges and "break costs" of hundreds of thousands or even millions of pounds to get out of the contracts.
Barclays has so far made the largest provision against swap mis-selling claims and has so far set aside £850m. HSBC has made the next largest provision of £130m, while Lloyds has yet to announce a provision, but is expected to say this week that it has set aside a total of about £300m when it reports its full-year results on Friday.
RBS's provision could take the industry bill to just over £2bn, well in excess of the £1.5bn total many analysts have forecast.
However, some derivatives experts believe that the eventual cost of swap mis-selling could rise to more than £10bn and possibly even exceed the £12bn put aside to compensate people caught up in the Payment Protection Insurance scandal.
According to Bully Banks, an organisation founded by swap victims that has more than 1,000 members, about 90pc of interest rate hedging products were sold to businesses by one of the big four banks. A survey by Bully Banks of more than 200 of its members found that RBS was the single biggest seller of swaps to small businesses, followed by Barclays.
Source: http://www.telegraph.co.uk/finance/rate-swap-scandal/9890199/Rate-swap-scandal-RBS-mis-selling-bill-may-exceed-1bn.html
No comments:
Post a Comment