What a suitably embarrassing end to Lloyds Banking Group’s misadventure in mis-selling PPI, or payment protection insurance. For the umpteenth time, the bank’s estimate of the cleanup bill has collided with reality and come up short.
A rush of claims by punters, ahead of the August deadline, has forced a £1.2bn-£1.8bn increase in Lloyds’ provisions, taking the total to roughly £22bn. For the entire UK banking industry, the eventual tally now seems likely to land above £50bn, an astonishing sum. For good measure, the regulator’s odd Arnold Schwarzenegger adverts have helped to terminate the last £600m chunk of Lloyds’ £1.75bn share buy-back programme, the one the board was so proud of.
It’s amazing now to recall that, back in 2011, when the chief executive, António Horta-Osório, commendably broke ranks with his industry’s defence of the indefensible, Lloyds reckoned it was looking a bill of a mere £3.2bn for PPI. By late-2014, the provisions had reached £10bn and the finance director confessed that getting a grip of the final figure was “fiendishly difficult”. You bet.
One can point (and the banks do) to the role of claims management companies and, of course, it’s true that compensation will have been paid to some people who never had a PPI policy. But let’s not pretend that the entire £19bn increase from Lloyds’ original estimate (and comparable percentage increases at other banks) can be explained solely by fraudulent claims or ugly skim-off merchants.
PPI was the most widely mis-sold product in UK financial history. It was fundamentally over-priced and various exclusions were designed to frustrate borrowers who might genuinely have benefited from cover against illness or unemployment. At some murky level, the bankers had convinced themselves that such products were justified because customers were also getting “free” in-credit banking, a deviously self-serving way to see life. PPI was a scam.
To this day, you’ll find bankers who blame Horta-Osório for opening the compensation floodgates. That view is also deluded. The banks were losing their PPI legal fights in the courts and the then-new Lloyds boss was correct to conclude that a reckoning had to happen. The industry has only itself to blame.
BA pilots go for Cruz
British Airways pilots tend to be a conservative bunch. They have threatened to strike many times over the years but, in the end, have always backed down and agreed a deal. Until now. What’s changed?
One factor, one suspects, is the low standing of the current BA chief executive, Álex Cruz, who doesn’t command the respect his predecessors did. On Cruz’s watch, BA suffered a huge IT collapse in 2017 and an enormous data breach in 2018, for which the airline faces a £183m fine from the Information Commissioner’s Office. Both episodes looked appalling.
The computer calamities were also a negotiating gift for pilots. If BA’s management prefers to maximise short-term profits, or so it must seem, why shouldn’t the people flying the planes also get a slice of the same incentive action?
Cruz, interviewed on the BBC on Monday morning, was vague about the pilots’ profit-sharing demands, presumably because he doesn’t have a good response. He was paid £1.3m last year and is in no position to try high-minded arguments. The pilots are extremely well-paid by everyday standards but also seem to be performing better in the air than Cruz has been on the ground.
Despite its troubles, BA made profits of £2bn-ish last year. If the pilots feel they are owed a catch-up settlement after making sacrifices in the post-2009 lean years, this is their moment to press their claims.
Cruz’s media tour was, presumably, designed to lay the blame for the grounded flights on the pilots. Good luck with that: many passengers will view a strike simply as the sort of thing that happens at BA these days.
The former BA chief Willie Walsh is the chief executive of the parent International Airlines Group these days and trying not to intervene. He may yet have to. Cruz sounds unconvincing.
