Spain's Banco Santander SA took a surprise hit to cover mis-selling of UK insurance policies, cleaning up its British arm's balance sheet ahead of an expected flotation next year. The eurozone's biggest bank took a charge of 620 million euros ($901 million) in the first half to cover compensation for mis-sold payment protection insurance policies (PPI) in Britain, helping to drag first-half profit 21 percent lower.
British banks have already made billions of pounds in provisions to cover compensation for these policies, intended to meet payments on mortgages and other loans in case of illness or unemployment. Santander had said it was compensating customers when appropriate, but it said it had seen a rise in claims since April, when the banks lost a court case and media coverage of the issue increased.
"If they are going ahead with this partial IPO in the UK, they want to clean the books," said Neil Smith, banking analyst at WestLB. Santander is seeking to raise capital to improve its solvency ratios by listing its British arm. It said the flotation was unlikely to take place this year, given dire market conditions and regulatory uncertainty.