HSBC, Barclays to set aside $3.4 billion for claims


HSBC Holdings, Royal Bank of Scotland and Barclays will set aside about $3.4 billion for customers improperly sold
personal-loan insurance after abandoning a lawsuit to avoid paying

Barclays, Britain’s second-biggest lender by assets, will
earmark 1 billion pounds ($1.6 billion) and HSBC $440 million, the banks said
in separate statements today. Edinburgh-based RBS, which had already made a
provision of 100 million pounds, will set aside an additional 850 million
pounds, the bank said.

The British Bankers’ Association today abandoned legal
attempts to overturn a court ruling that may force the industry to pay more
than 8 billion pounds. Llyod’s Banking Group, the biggest provider of payment protection
insurance, last week broke ranks with competitors and earmarked 3.2 billion
pounds to settle claims with clients who bought the insurance, which covers
payments on credit cards and mortgages in case of illness or unemployment.

“When Lloyds says game over, let’s pay up, then everybody
else has to cave in pretty fast,” said Simon Maughan co-head of
European equities at MF Global Ltd. in London.

Clients who bought the insurance rarely compared prices and
terms or switched providers, and usually weren’t aware they could have
purchased it elsewhere, according to the Competition Commission.

“We don’t always get things right for our customers,”
Barclays Chief Executive Officer Robert Diamond said in
the statement. “When we get them wrong, we apologize and put them right.”

 “Today signals the
end of years of poor PPI complaint handling and will trigger a dramatic
improvement in the way customers are treated,” the FSA said in a statement.
“Banks must now get on with handling all PPI complaints and paying redress
where appropriate.”

PPI generated as much as 5.5 billion pounds in annual
revenue for U.K. banks, with about 6.5 million policies sold in 2006, according
to estimates by the FSA. Before the Lloyds announcement, the FSA had estimated
the industry may face payouts of as much as 4.5 billion pounds.

Deutsche Bank AG analyst Jason Napier estimated last week
that London-based Barclays would need to set aside 1.1 billion pounds, RBS 1
billion pounds and HSBC about 600 million pounds.