Lloyds hit by fresh £1bn PPI bill

Latest payout takes bank’s cost of payment protection insurance mis-selling scandal to £17bn

Lloyds Banking Group has taken another £1bn hit for payment protection insurance, in a move it hopes will cap its bill for the mis-selling scandal at £17bn.

The fallout has cost the industry has already reached £37bn and looks likely to rise further in the coming days when other high street banks could add to their existing provisions for mis-selling the insurance product.

George Culmer, Lloyds’ finance director, said the £1bn top-up should be the last “big” addition to the bank’s PPI bill and was driven by the decision by the Financial Conduct Authority to set a deadline of June 2019 – rather than spring 2018 – for claims.

PPI

Lloyds has incurred the largest single bill for the scandal as it also owns HBOS, which it took over during the 2008 banking crisis.

The charge for PPI was revealed as the bank reported its profits for the first nine of months of the year, which were 50% higher at £3.2bn despite the PPI charge. In the third quarter, however, profits were down 15% at £811m.

Listed among the charges taken by the bank was another provision of £150m for packaged accounts, where products such as travel insurance and roadside assistance policies are bundled up alongside current accounts.

The taxpayer still owns a 9% stake in Lloyds – down from 43% at the time of the financial crisis – and the slump in its shares has forced chancellor Philip Hammond to abandon a plan to sell shares to the public at the discount. Instead Hammond has signalled that the remaining shares will be sold to City investors on the stock market.

The shares were the biggest fallers in the FTSE 100, down about 2.5%, but regained their losses as analysts digested the implications for the bank returning cash to shareholders next year. The shares are still well below the 73.6p average price at which taxpayers bought them during the crisis.

António Horta-Osório, the chief executive, who in August apologised to staff for the hit to the bank’s reputation because of revelations about his private life, said the sale of the remaining stake would not be his cue to leave.

“I am very happy at Lloyds. I … like the team here and I like the strategy,” said Horta-Osório, who took the helm in 2011 and immediately began the process of PPI payouts. Lloyds started with a £3.2bn provision, which at the time was thought to have been enough to tackle the compensation payouts.

He said: “The hard work undertaken in the last five years to transform and simplify the business has allowed the UK government to sell most of its stake in the group, returning £17bn including dividends on its original £20bn investment. We welcome the recent decision to recommence the sale of its shares.”

Since the rescue of HBOS approximately 45,000 jobs have been axed, and Horta-Osório would not be drawn on any further cost-cutting programmes as he said 60% of transactions with the bank could be conducted digitally.

Lloyds is the first major bank to report its third quarter results, which cover the period since the Brexit vote, and Horta-Osório played down the impact on consumers, saying: “We don’t see any change in consumer trends.”But, he said, with small business customers “there has been some impact on businesses holding back on investment”.

The bank also said its pension scheme had turned from a £430m surplus deficit of £740m as as a result of the plunge in bond yields caused by the low interest rate environment. Culmer said there was no need for immediate action to cut the deficit.

Analysts were watching for signals about the size of dividends to shareholders. Gary Greenwood, at Shore Capital, said there was potential for payouts.

“The real highlight is a much stronger than expected capital generation, which means that management has reiterated its guidance for the group to deliver full-year pre-dividend capital generation equivalent to 1.6% of risk-weighted assets – around £3.6bn or 5p per share – for the year as a whole,” he said.

Horta-Osório also reiterated remarks he made shortly after the EU referendum, hinting that Hammond should announce more spending on infrastructure in next month’s autumn statement.

“We strongly believe the economy requires a fiscal stimulus in terms of infrastructure and housebuilding. Interest rates have never been so low,” the Lloyds boss said.