Barclays is set to follow its rival Lloyds Banking Group and abandon its legal fight over the mis-selling of payment protection insurance, it was reported today.
The group is expected to announce this week that it will not appeal a High Court decision on the issue, paving the way for thousands of customers who were mis-sold the policies to receive compensation, according to the Sunday Telegraph newspaper.
The move, which is said to have been personally sanctioned by the group’s chief executive Bob Diamond, comes after Lloyds Banking Group last week surprised the City by announcing it was pulling out of any further legal action and setting aside £3.2 billion to compensate customers.
The scale of the provision caused the taxpayer-backed bank to record a loss of £3.47 billion for the first three months of the year, compared with a £721 million profit last year.
The huge amount set aside also suggests that the final PPI compensation bill for the whole industry could be far higher than the £4.5 billion that was originally estimated by the Financial Services Authority (FSA), with speculation that between £7 billion and £8 billion could eventually be paid out.
It is not known how much Barclays is likely to set aside for compensation, but it is thought to have had a PPI market share of around 15%, compared with between 30% and 40% for Lloyds, suggesting a figure of around £1.5 billion.
Lloyds’ decision came after the British Bankers’ Association, which was acting on behalf of the banking industry, lost its High Court challenge against new FSA rules on mis-selling PPI being applied retrospectively.
The BBA has until Tuesday to decide if it wants to appeal against the ruling, and officials are understood to have been meeting this weekend to discuss their next move.
But with Lloyds and Barclays pulling out of the action, the other banks involved – namely HSBC and Royal Bank of Scotland – are likely to come under pressure to admit defeat and pay compensation.
The FSA is reported to be in talks with the remaining banks to try to reach a settlement.
Barclays declined to comment on the report, sticking to its previous statement on the issue.
The group said: “We along with other BBA members are considering the implications of the judgment.
“We continue to review our options and we will make an announcement as and when we have further information.”
Barclays last month endured a torrid annual general meeting, with shareholders expressing anger over “obscene” pay packages at the banking giant.
A series of private investors complained that dividend payments had fallen since the financial crisis while high-flying staff were still commanding enviable salaries and bonuses.
The group saw pre-tax profits drop by 9% to £1.66bn in the first quarter of 2011 after income and profits at its investment banking arm fell sharply.