Banks to admit profits have been wiped out by PPI costs

Third quarter results by Lloyds Banking Group, the Royal Bank of Scotland and Barclays are expected to show that despite advances of the past three months, the banks have been pushed in to the red by the mounting PPI scandal.

Lloyds may have to set aside as much as £2bn against PPI claims pushing its total losses to more than £6bn. Barclays has raised it provisions by £700m.

RBS, which is reporting its first results since exiting the Government’s asset protection scheme, is forecast by some analysts to break even this quarter. However the bank is expected to set an extra £500m against PPI and as much as £200m for mis-selling interest rate swaps to small businesses, which will cause it to report an overall loss.
The cost of the PPI scandal to the British banking industry is pushing above £10bn.
Barclays, which is expected to unveil an overall loss of £100m, is planning to axe the salaries of its leading investment bankers in response both to the results and the demand for a less excessive culture.

The Sunday Telegraph revealed that Barclays is planning to cut in half the salaries of those earning between £500,00 and £3m as part of the bank’s overhaul under chief executive Antony Jenkins. The new bank boss is understood to have told top shareholders about the plan and warned them they it could result in some bankers quitting. Investors are supportive – one said if some bankers leave, “so be it.”

Barclays may also announce further executive changes including a shake-up of the management of Barclays Capital, currently led by Rich Ricci.

Barclays, which unveils its results on Wednesday ahead of Sir David Walker’s official start as chairman, is expected to announce adjusted profit before tax of £1.7bn. But a £700m PPI provision, together with a £1.1bn charge against the value of its own debt, will eradicate the profits. RBS is also expected to cite debt valuation as a cause for its overall loss.

Analysts expect Lloyds, 41pc state owned, to report £685m pre-tax profits in the three months to September – 23pc up on the second quarter. But the bank is expected to sharply increase it provisions – on top of the £4.3bn it has already reserved to pay for PPI claims.
Investec’s banking analyst Ian Gordon and Gary Greenwood at Shore Capital are expecting Lloyds to announce £2.3bn extra PPI provisions. Overall Lloyds, which is reporting on Thursday, is forecast to announce a pre-tax loss of around £700m.

Separately Lloyds may be dragged into the international scandal of Libor rate fixing. The group had so far largely escaped the investigaiton that has embroiled more than 20 banks.
But it has emerged that both Eric Schneiderman, New York’s attorney general, and Connecticut’s prosecutor, George Jepsen, have issued subpoenas to the bank demanding information.