Lloyds PPI costs rise to £10bn

The taxpayer-owned bank has added £1.8bn to its misselling provision, while investors are miffed about a lack of dividends.

by Rachel Savage
Last Updated: 13 Feb 2014

Lloyds Banking Group has set aside another £1.8bn to cover the misselling of payment protection insurance (PPI), bringing the total provision to almost £10bn. It is the latest bank to rush out bad news before the yearly banking results season gets going next week.

The bank, which is 32.7% owned by the British taxpayer, also added £130m to a provision relating to the sale of interest rate hedging products to small and medium-sized businesses.

It’s a blow for Lloyds, which has actually been doing quite well, especially compared with its 80% taxpayer-owned cousin RBS. The bank said today that it expects to report underlying full-year profit of £6.2bn, above analyst expectations and more than double the £2.6bn it posted in 2012. That follows the government’s sale of 6% of the Lloyds in September, ahead of a larger sell-off some time later this year.

In contrast, RBS said last week that it expected to make a loss of £8bn in 2013, which the markets were actually rather blasé about. Barclays also jumped on the sooner-rather-than-later bad news bandwagon, announcing an extra £330m in provisions for legal and regulatory malarkey.

Looks like investors actually seemed more concerned by the news that Lloyds isn’t going to apply to restart dividend payments until the last half of this year then, which is later than they had expected.

Lloyds said it would apply to the Prudential Regulatory Authority (PRA) to start paying out ‘modest’ dividends, with the aim of moving to ‘at least 50% of sustainable earnings’ in the ‘medium term’. Shares were down 2.6% in mid-morning trading, trimming their 12-month rise to a nonetheless-impressive 64%.

‘The ‘modest level’ is disappointing to us as we had factored in a 40 per cent payout in 2015, which looks optimistic in light of today’s announcement,’ said Joseph Dickerson, an analyst at Jefferies.

The ongoing PPI scandal has been manna to those parroting the ‘bad banks’ mantra. Lloyds, which has set aside the majority of the £20bn British banks have provisioned for the debacle, was hit with a record £28m fine by the Financial Conduct Authority (FCA) in December over a bonus scheme which encouraged staff to push unnecessary products to customers.

Lloyds has so far received over 2.5m PPI complaints, and expects to get another 500,000, finance director George Culmer said. ‘I’m as disappointed as anyone at getting it wrong again,’ he said sorrowfully.

However, the irony is that the millions of PPI payouts from taxpayer-owned banks, which average £2,600 each, are actually helping spur the economic recovery. After being not-unfairly blamed for getting us in this recessionary mess in the first place, the least banks could do is line our pockets again.

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