Shares in the NAB UK bank spin-off, CYBG were hammered yesterday after it revealed the second major provision against sales of dodgy insurance products.
The shares plunged to a low of $1.93 – a loss of 21% after CYB revealed a blowout of up to £450 million ($810 million) in its costs relating to refunds and complaints over the dubious insurance products.
Last November the bank saw its shares lose 20% in a day, to a then low of $3.54 when he surprised with a £200 million.
Now that is no longer enough the bank has to find hundreds of millions more because it underestimated the level of claims and size of settlements to customers sold this form of insurance.
The shares closed the day down 19.5% at $2.005.
Just under 60% of the bank’s shares are held by Australian investors, most of whom are NAB shareholders who hung onto the scrip after the spin-off in 2016 at an imputed price of $4.01 a share.
CYB said on Thursday that it had seen a “significant spike” in complaints about a product known as payment protection insurance (PPI) in the lead-up to a late August deadline.
As the complaints poured in, CYBG said it had received more than eight months worth of customer “information requests” in one month.
As a result and based on past experience with PPI claims, which have dogged British lenders for years (costing more than $A50 billion over a decade in claims, payouts, and fines), CYBG estimated it may need to provide for an extra £300 million to £450 million in costs.
If that provision had been made before June 30, it would have been equal to a 1.3 to 1.9 percentage point hit to its common equity tier 1 capital ratio, a key gauge of strength.
The bank said the final cost of the compensation could be higher or lower than its estimate, with more detail to be revealed towards the end of the year (probably when it reports in late November).
“The group will now focus on working through the significant volume of Information Requests received and expects to be in a position to provide a more accurate estimate of the costs at its Full Year results on 28 November 2019,” CYBG said.
