Santander Payment Protection Insurance Busted

What do HSBC and Santander have in common? Aside from Santander buying HSBC’s auto loan business in the U.S., they both have insurance problems.

Santander UK yesterday revealed that its half year profits had dropped after it set aside more cash to cover claims over the mis-selling of payment protection insurance (PPI).

In the six months ended June 30 2011, Santander UK’s profit after tax attributable to equity shareholders declined by 51 per cent to £413m. Ana Botin, Santander UK’s chief executive, said: “The outlook for earnings remains difficult, with pressure on revenues, driven by the lower interest rate environment and competition for deposits.

“In relation to credit provisions, the speed of economic recovery is critical, combined with rising interest rates in the future.”

In the company’s business and financial review, Santander UK said that, in line with other UK banks, a further provision for customer remediation of £731m has also been made, primarily in relation to payment protection insurance.

It has been estimated that the mis-selling of debt repayment insurance policies could cost the UK banking industry £8bn in total.

The PPI insurance policies were typically taken out alongside a personal loan or mortgage to cover repayments if customers fell ill or lost jobs.