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Royal Bank of Scotland to Face New PPI Claims of About GBP900M

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Per a Reuters article, Britain-based Royal Bank of Scotland (RBS - Free Report) is likely to set aside additional 900 million pounds ($1.1 billion) as reserve over and above existing reserve of 5.3 billion pounds. Out of this reserve, the bank is expected to settle down the final compensation of customers who were impacted by the mis-selling of payment protection insurance (PPI).

Notably, the recent increase in customer claims after August has compelled the bank to increase the reserve. Per RBS, around 4.9 billion pounds of the total provisions have already been taken for use.

The bank will be recording further charge for PPI claims of between £600 million and £900 million in its third-quarter results additionally. Moreover, the bank added, “The processing of claims is ongoing, and the ultimate provision recognised could be above or below this range.”

However, Aug 29 was the official deadline for making claims by clients, but technical glitches at RBS and NatWest might give a benefit of doubt to individuals to claim beyond that.

PPI, Britain’s costliest consumer scandal, has already received around £36 billion as compensation from the U.K. banks. Under this, customers bought useless insurance cover with the impression of paying back debts at the time of sickness or unemployment. Therefore, the current figure may spike up over the upcoming months.

In Conclusion

Post the 2008 financial crisis, regulators have ramped up their efforts to penalize financial entities for wrongdoings and misrepresentation of facts while selling products. Many foreign banks, including Deutsche Bank AG (DB - Free Report) , UBS Group AG (UBS - Free Report) and Credit Suisse Group AG (CS - Free Report) , have settled numerous litigations. We believe all these settlements indicate banks’ efforts to get past the legal headwinds and concentrate on improving their operational efficiency.

In six months’ time, RBS’ share price has been down more than 35% on the NYSE as compared with the 12.8% decline recorded by the industry.

Royal Bank of Scotland currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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