Part state-owned lender Royal Bank of Scotland (RBS) is being watched closely by the market as Investec expects a huge hike in the lender’s provisions to settle interest rate swap mis-selling claims.
The industry allocated more than £3 billion at the end of June to compensate small businesses which bought the derivatives to protect them against rising loan repayments.
RBS has so far set aside £750 million to settle its 9,700 claims. The size of its compensation pot may rise, however, when compared to the £1.5 billion Barclays (BARC) has ear-marked to pay its 3,400 cases.
More pressure could be heaped on RBS today as the debate returns to parliament where MPs are concerned about the lack of the industry’s progress in compensating those mis-sold the product with only 32 out of 40,000 cases settled.
The delay is due to customers launching claims for the losses they have incurred as a result of the deal, where both cases have to be resolved before compensation is paid. RBS has followed HSBC’s (HSBA) lead and is dealing with the two claims separately, which should speed up the redress process.
More bad news could be on the way for the bank and its new chief executive officer Ross McEwan when it issues a third quarter update next week (1 Nov). Investec expects the bank to fall into the red in the second half after making a £1.4 billion pre-tax profit in the first six months of the year. Weak core earnings, especially in its markets division, are believed to be driving the downward trend.