Lloyds Banking Group has put aside a further £1.8bn to cover a surge in payment protection insurance (PPI) complaints before the August claims deadline, which nearly wiped out its quarterly profit.
Including the PPI charge, the bank’s profit before tax slumped to £50m for the three months to 30 September, from a profit of £1.8bn in the third quarter last year. The result was weaker than expected.
The latest charge is at the top end of estimates, and takes the group’s total bill to £21.8bn. PPI has become the banking industry’s biggest mis-selling scandal and Lloyds accounts for almost half the total bill, which has risen to around £50bn.
Lloyds shares were among the biggest fallers on the FTSE 100 on Thursday, down nearly 2% at 57p.
The City regulator had set a 29 August deadline to make a claim for compensation for mis-sold PPI, which sparked a surge in complaints in the final weeks, prompting Lloyds to suspend a share buyback programme. PPI was sold alongside loans and mortgages to cover repayments if customers fell ill or lost their jobs, but the insurance was often sold to people who did not want or need it.
António Horta-Osório, the chief executive, said: “I am disappointed that our statutory result was significantly impacted by the additional PPI charge in the third quarter, driven by an unprecedented level of PPI information requests received in August.”
William Chalmers, the bank’s new chief financial officer, a former Morgan Stanley banker, said the charge reflected its “best estimate of what PPI might come out as” but he could not rule out further provisions. “When George walked out the door he said: ‘Never say never’ on the issue,” he quipped about his predecessor, George Culmer.
Chalmers said the bank would look at all claims “no matter where they came from”. The official receiver is pursuing outstanding compensation payouts in respect of bankrupt and insolvent individuals.
Royal Bank of Scotland took another £900m PPI charge last week, which pushed the 62%-state-owned bank into a quarterly loss of £8m. Barclays set aside a further £1.4bn, taking its bill to £11bn, and reported an 80% plunge in profits.
Similar to Barclays, Lloyds warned that the “continued economic uncertainty could further impact the outlook”. Chalmers said investment activity had weakened, but expressed hope that the UK’s general election in December would resolve Brexit uncertainty.
He said: “That uncertainty will hopefully come to an end over the course of the next nine months, 12 months, be it what it may, and we hope that will then encourage more long-term investment into the economy. The commercial business at Lloyds will benefit and the rest of the economy.”
Impairments at Lloyds rose 15% to £371m due to a single large corporate failure, which the bank declined to identify and analysts speculated could be the bank’s exposure to the collapse of Thomas Cook. Lower used-car prices hurt the bank’s Black Horse motor finance business.
However, Chalmers said credit conditions overall remained benign. Lloyds, which owns Halifax, is Britain’s biggest mortgage lender, and is seen as a bellwether for the UK economy.
Lloyds announced that its chairman, Lord Blackwell, would retire at or before next year’s annual meeting, after seven years in the role. The firm’s chief operating officer, Juan Colombás, will step down in July after four years in the job.
Richard Hunter, head of markets at investment platform interactive investor, said: “The shares have had the benefit of a ‘Brexit bounce’ of late, rising 9% in the last three months as perception switched to ruling out the likelihood of a no-deal Brexit. That particular cloud will not be lifted in the immediate future, and on balance the third quarter numbers were largely uninspiring.”