“While the group delivered a strong underlying performance, the significant action taken to manage the group’s legacy conduct issues means we have reported a statutory loss after tax of £76 million.”
These were the words of CYBG chief executive David Duffy when the Clydesdale Bank owner reported its financial results for the six months to the end of March, with the numbers showing a stark contrast if you compare them to those from the same period last year. This year’s £76 million loss (£95 million before tax) was a nosedive from 2017’s £30 million statutory profit attributable to equity holders.
The first-half loss was mainly attributed to legacy conduct costs of £220 million – from £19 million previously – in the period.
“In line with the rest of the industry, the group has experienced a sustained period of elevated PPI (payment protection insurance) complaints in the six months to March 31, 2018,” noted CYBG in its interim results announcement. “The group has reassessed the level of provision that was considered appropriate to meet current and future expectations in relation to the mis-selling of PPI policies and concluded that a further charge of £350 million was required.
“As a legacy conduct issue this provision is partially covered under the terms of the conduct indemnity deed entered into with National Australia Bank. The group expects to draw down the full amount of the remaining indemnity cover (£148 million), with the balance of £202 million recognised as a charge to the income statement.”
Aside from the abovementioned £202 million charge for PPI claims, CYBG also cited £18 million in additional costs for other conduct-related matters – thus the £220 million total, which drove the first-half negative result.
“Walk-in complaint volumes have been running much higher than both we and the industry expected and as a result we revised our forecasts for the level of complaints received out to the time bar in August 2019,” explained Duffy, referring to PPI. “In addition, due to the complexity of the remaining cases within our proactive remediation exercise, we were required to take a provision top-up to close out the programme.
“While the size of the additional PPI provision charge is disappointing, it is important to note that given the strong capital position of the group we have been able to absorb this impact and continue to retain a significant buffer to our regulatory requirement such that our strategy and future growth aspirations remain unchanged.”
According to the Financial Conduct Authority, more than 1.5 million PPI complaints – the highest level in over four years – were made in the second half of 2017.