RPT-UK banks still in profit from insurance mis-selling

By Steve Slater and Matt Scuffham

LONDON, March 7 (Reuters) - Britain's banks have stillprofited from the sale of flawed loan insurance policies, evenafter lifting estimates for the compensation bill to more than14 billion pounds ($21 billion), according to data from one bankand industry sources.

HSBC, Britain's biggest bank, this week raised itsprovision for payment protection insurance policies (PPI) to$2.4 billion, but revealed it had sold $4.1 billion worth of theproducts since 2000.

It is the only bank to publicly estimate its income from PPIand its provision is regarded as the most conservative of thetop lenders, suggesting banks as a whole have still made a netgain from the sale of the products intended to give borrowers aguarantee of being able to pay back a loan.

Lloyds Banking Group, Royal Bank of Scotland and Barclays declined to say how much incomethey had made from sales of PPI products, which becamecontroversial because they were often sold to people who did notwant or need the protection.

Top bank executives held a conference call on Thursday todiscuss whether to continue lobbying Britain's financialregulator to set a deadline on when customers can make PPIclaims.

The call ended without a firm decision and talks will resumein coming weeks, a person involved in the discussions said.Banks want to cut off claims by April 2014, which the regulatorhas said it will consider, but executives have told Reuters theyare pessimistic about their chances of success.

HIGHLY PROFITABLE

Banks could end up paying more than 20 billion pounds tocompensate customers, industry sources have said.

Consumer group Which? estimates consumers have spent morethan 50 billion pounds on PPI policies over the last 16 yearsand policies were highly profitable - the Competition Commissionhas estimated they delivered a return on equity of 490 percent.

PPI has become the biggest mis-selling scandal to hit UKbanks and they have repeatedly underestimated the scale of theproblem.

Lloyds, the biggest UK retail banking provider, has setaside 6.8 billion pounds for PPI compensation, Barclays has setaside 2.6 billion and RBS has provisioned 2.2 billion.

Natalie Ceeney, who is dealing with complaints as head ofthe Financial Ombudsman Service, this week told Reuters bankscould be paying out to customers for years to come. She toldlawmakers in January compensation paid by banks so far "doesn'tcome anywhere near the profits made from PPI".

About 45 million PPI policies are estimated to have beensold by banks.

HSBC said in its annual report this week it sold 5.4 millionpolicies since 2000 and average compensation per successfulclaim was 1,550 pounds. Average payouts across the industry havebeen estimated at 2,500 pounds.