By Sam Unsted
The return of an advertising campaign starring an animatronic head of Arnold Schwarzenegger has caused complaints about mis-sold payment protection insurance to surge for one UK bank, hammering its shares.
Shares in CYBG — which is led by ex-AIB chief, David Duffy — fell 5%, after the company said it will increase provisions to cover payment protection insurance (PPI) compensation by £350m (€405m), resulting in a pre-tax charge of £202m in interim results.
The bank is now valued at £2.68bn.
The lender said it has seen an “elevated level of complaints” in the six months to the end of March and anticipates this will remain the case for a period of time, in part due to the campaign starring an animatronic Mr Schwarzenegger.
The UK’s Financial Conduct Authority re-launched an informational advertising campaign earlier this month, in which a disembodied model of the Terminator star’s head urges people to ensure they file a claim for mis-sold PPI, before the August, 2019 deadline.
Lloyds Banking Group and RBS — the owner of Ulster Bank — are among other lenders that have set aside money for the claims.
“Without doubt, this is a bit of a disaster for CYBG,” Shore Capital analyst, Gary Greenwood, wrote in a note. In the past, the bank had been largely protected from PPI claims by the indemnity provided by National Australia Bank, from which CYBG was spun out in March, 2016.
But the new provision means CYBG will have run through the undrawn indemnity remaining and will take the hit on its own bottom line.
The extra provisions made by CYBG, which owns the Clydesdale and Yorkshire banks, raises questions about implications for other banks, particularly for Lloyds, according to Mr Greenwood.
Still, CYBG could just be “a little behind the curve”, given that Lloyds only recently updated its PPI assumptions, the analyst said.
“The big question, now, is whether the assumption of a further 110,000 cases is sufficiently conservative,” said analyst, John Cronin, at Goodbody.
“With 59,000 in the last 12 months, it could be argued CYBG is still looking light.
“That said, the company does reference that January represented the peak month for complaints in recent times and we understand that there has been no material uptick in complaints in response to the FCA’s latest ad campaign.”
Bloomberg; Additional reporting: Irish Examiner