Clydesdale owner National Australia Bank yesterday warned investors it remains unable to say how much it will be forced to pay out to compensate customers mis-sold complex financial products.
First-half results posted to the Australian Stock Exchange revealed how the group set aside £128 million to pay for “conduct-related costs” during the six months to March, most of it recorded against NAB’s central corporate function based in Melbourne.
The accounting method left the group’s UK business, which also includes the Yorkshire Bank, able to show cash earnings of £73m for the period up 121% on the previous year.
But its additional conduct provision brings the total set aside for customer compensation to £152m, with NAB warning more may yet be needed.
“UK conduct-related costs for the period totalled £128m, including £115m reported in the group corporate centre reflecting increased provisions relating to the interest rate hedging products and certain tailored business loans,” NAB’s statement to the markets in Sydney said.
“There remains a wide range of uncertain factors relevant to determining the total costs associated with conduct-related matters and there is a risk that additional provisions will be required.”
An accompanying shareholder presentation revealed how an NAB review of interest rate hedges and tailored business loan (TBL) products had found higher-than-expected compensation required for the former and a lower-than-forecast level of borrower sophistication amongst TBL customers, likely upping the lender’s liabilities significantly.
NAB also noted it had received a “number” of complaints from customers with unregulated TBL loans currently outwith the scope of its review.
Campaigners from the NAB Customer Support Group, which includes a strong chapter of members in Scotland, have long argued the products contain embedded interest rate swaps similar to those which have required banks to pay out hundreds of millions of pounds in redress to suffering small businesses.
Financial Conduct Authority chief executive Sir Martin Wheatley estimates as many as 60,000 small firms could have been mis-sold products containing swaps by a string of banks exploiting a loophole in the current oversight regime. Currently only standalone swap products are regulated, with the FCA unable to intervene in more complex agreements unless it is handed additional powers by Government.
Westminster’s Treasury Select Committee, which includes Dundee East MP and SNP Treasury spokesman Stewart Hosie, is looking into the practice as part of its inquiry into small business lending.
Clydesdale and Yorkshire yesterday reported an underlying profit of £144m for the six-month period, with bad and doubtful debts reduced by 39.6% to £55m. Operating expenses were reduced by £14m, while mortgage lending grew by £1.4 billion against a flat market in the banks’ core areas.
Net profits climbed more than 15% on a group-wide basis to A$2.86bn, with the interim dividend hiked by 6% to 99 cents per share after what soon-to-stand-down chief executive Cameron Clyne described as a “good” year.