Santander UK Sets Aside $374 Million For Litigation Costs
Caught in the biggest consumer banking scandal, Santander UK Group, the UK arm of Spain’s Banco Santander, on Wednesday said that it has made a provision of $374.18 million in its financial results for the third quarter of 2024.
The UK’s Financial Conduct Authority (FCA) last week said that it would request the Supreme Court to expedite a decision to permit lenders to appeal a crucial judgment that may pave the way for Britain’s costliest consumer banking scandal since the faulty sales of payment protection insurance.
Santander UK Group is the second bank to do so after Lloyds, which owns the UK’s biggest auto lender Black Horse, has already set aside $570.78 million to cover potential costs tied to the FCA’s review.
The provision made by Santander includes estimates for operational and legal costs (including litigation costs) and potential awards, based on various scenarios using a range of assumptions, such as the outcome of any Supreme Court appeal, the scope and timeframe of any redress scheme, applicable time periods, claims rates and compensatory interest rates.
The outcome of the UK FCA’s review and/or adverse outcomes from litigation could result in material costs. These matters mean that there are currently significant uncertainties as to the extent of any misconduct, if any, as well as the perimeter of commission models, nature, extent and timing of any remediation action if required, the Group said.
As such, the ultimate financial impact could be materially higher or lower than the amount provided and it is not practicable to quantify the extent of any remaining contingent liability, the Group said.
“There are currently significant uncertainties as to the nature, extent and timing of any remediation action if required and the ultimate financial impact could be materially higher or lower than the amount provided,” it added.
It may be recalled that the UK’s Court of Appeal on October 25 ruled that it was unlawful for car dealers to receive bonuses from banks providing motor finance without getting the customer’s informed consent.
The Court of Appeal decided that motor dealers acting as credit brokers owe certain duties to their customers and set a higher bar for the disclosure of and consent to the existence, nature, and amount of commission paid to dealers than that required by current FCA rules, or regulatory requirements in force at the time of the cases in question.
Profit Before Tax Tumbles
During the third quarter 2024, profit before tax reduced to $181.38 million from $523.85 million in the second quarter. Increased income from active price management, and a steadily improving economic environment were offset by a provision relating to historical motor finance commission payments.
The CET1 capital ratio increased in the quarter to 15.4% despite the impact of this provision, which was 19bps. We remain well capitalised with significant buffers over regulatory requirements.
The net interest income increased 4% q-o-q following further active margin management and non-interest income increased 10% largely due to lower switcher fees paid to customers this quarter.
The o Operating expenses were down 2% following simplification and automation while credit impairment charges were down 15% following changes to the Group’s economic scenarios given improved economic outlook.
Provisions for other liabilities and charges were up $437.60 million, driven by a $374.18 million provision relating to historical motor finance commission payments, as well as higher transformation costs and a provision relating to a legacy tax issue from 2018, the Group added.
