Barclays ( BCS ) has decided against appealing a High Court ruling regarding complaints of Payment Protection Insurance (PPI) mis-selling. The company became the second bank after the Lloyds Banking group ( LYG ) to pull out of the ongoing legal tussle between the Financial Services Authority ( FSA ) and the British Banking Association (BBA) representing UK's four biggest banks - the other 2 being the RBS Group ( RBS ) and HSBC ( HBC ). Since the High Court decided in favor of FSA last month, Lloyds Bank announced that it had set aside £3.2 billion ($5.2 billion) to compensate its customers in regards to the PPI complaints.
Barclays has agreed to begin processing complaints from customers about PPI policies, including those currently on hold. While the company indicated that it was difficult to determine the expenses it would need to incur because of this decision, it has decided to set aside a £1 billion ($1.6 billion) provision in Q2 2011 for PPI payments.
… and what it means for the firm's stock value
The impact of this decision on Barclays' share price can be examined by modifying the trend line in the interactive chart above. You can reduce the non-interest income margin for the firm's corporate banking division to reflect these expenses.
Assuming total expenses of $1.6 billion, completely expensed in 2011, this indicates a margin of 1.5% for this year. This change reduces our $18.30 price estimate by about 4¢ - hardly any impact at all.
Our price estimate for Barclays stock stands at $18.30, roughly in line with market price.
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