British banks gave up a fight over compensating customers wrongly sold insurance, forcing Barclays and HSBC to take a combined hit of more than $2 billion in the latest blow to the industry.
Barclays said it would make a £1 billion ($1.6 billion) provision in the second quarter of 2011 to cover the costs related to the mis-selling of payment protection insurance (PPI), with HSBC setting aside $440 million.
British banks, already under pressure from regulators to clean up their act following the financial crisis, said they would not appeal against a ruling requiring them to pay compensation. The bill could total around £8 billion.
Monday’s hit comes after rival Lloyds capitulated last week and unveiled a shock £3.2 billion charge to cover compensation, after years legal of wrangling.
Barclays and HSBC shares fell 1.4% in mid-morning trade.
PPI policies were typically taken out alongside a personal loan or mortgage to cover repayments if customers fell ill or lost their jobs.
But the policies were sold to self-employed or unemployed people who would not have been able to claim and to consumers who did not realise they were taking out a policy.
{{/usCountry}}But the policies were sold to self-employed or unemployed people who would not have been able to claim and to consumers who did not realise they were taking out a policy.
{{/usCountry}}Last month a court had ruled that the banks were at fault.