PPI mis-selling charge reaches £5.3bn at Lloyds
Bailed out bank takes another £1bn charge to cover the cost of compensating customers for mis-selling payment protection insurance.
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Lloyds Banking Group has raised its charge for PPI mis-selling.
Photograph: Ben Stansall/AFP/Getty Images
The mounting cost of the payment protection insurance (PPI) mis-selling scandal was laid bare by Lloyds Banking Group on Thursday as the bailed-out bank took a further £1bn charge to cover the cost of compensating customers – and admitted more could follow.
The total bill for the sale of the insurance, which was intended to cover payments on loans in the event customers ran into financial difficulty, has now reached £5.3bn for Lloyds alone. The major high street banks combined have incurred costs of more than £10bn.
António Horta-Osório, chief executive, conceded that the bill may rise even further as the bank was continuing to assess the level of claims being made, some of which the bank insists are being made by claims management firms for customers who do not have policies with the bank.
"A number of uncertainties remain as to the eventual cost to the group of PPI complaints. However, we will continue to review closely our estimates based on our further experience of complaints volumes and seasonality, uphold rates and redress costs and by the time of our full year 2012 results announcement on 1 March 2013, we expect to have a higher degree of confidence in forecast trends and the ultimate likely cost of PPI," the bank said.
The PPI provision helped drive the bank, just under 40% owned by the taxpayer, to a pre-tax loss of £583m for the first nine months of the year.
While the volume of PPI complaints has slowed in the third quarter, it is still higher than the estimates the bank made in the second half of the year.
Even so, the extra £1bn provision was less than the £2.3bn that some analysts had feared. The bank's shares rose 3% to 42p but remain well below the 73p average price at which the taxpayer bailed out the bank, a loss of around £5bn.
Horta-Osório insisted he had "absolutely no regrets" about his ground-breaking decision in March 2011 to withdraw from an industry attempt to fight PPI claims through the courts which led to provisions being taken across the industry. Barclays' provision has reached £2bn while Royal Bank of Scotland, which reports on Friday, and HBSC, which reports on Monday, have so far announced provisions of £1.3bn and £1.1bn respectively. Santander's cost is around £500m.
Lloyds was the first take a provision, of £3.2bn, in May 2011 which led to bonuses being clawed back from his predecessor, Eric Daniels, and other former and current Lloyds bankers.
Without taking the provision, the bank "would have been building on false foundations", said Horta-Osório who became chief executive at the start of March 2011.
The Portuguese-born banker insisted Lloyds was ahead of its strategic plan – which will eventually to lead to almost 45,000 job cuts across the bank which includes brands such as Halifax and Scottish Widows.
The bank said it wrote to the Financial Ombudsman Service last month to suggest claims management companies pay the £850m charge associated with processing claims they bring. Lloyds insists that 50% of the claims it receives are "duplicates or dubious" but Natalie Ceeney, head of the FOS, told MPs this week that too many claims were being thrown out by the banks. Lloyds insisted on Thursday that this was not the case and had asked Ceeney for the data.
As well as the PPI scandal, the bank is also making claims in German courts for policies sold by Clerical Medical through intermediaries in Germany. Another £150m provision was taken in the third quarter, taking the total to £325m.
Despite the loss in the nine months, Horta-Osório said the bank had made "further significant progress this quarter".
"We have a strong commitment to helping Britain prosper, and our early participation in the funding for lending scheme is enabling us to extend further financing to businesses and customers in the UK. As part of this focus on supporting sustainable economic growth, we are continuing to increase SME lending on a net basis in a contracting market and provide mortgages to one in four first-time home buyers," he said.
There was better news from the bank in terms of provision for loans which have turned sour as it lowered its guidance for the full year 2012 impairment charge to approximately £6bn, around £1.2bn lower than its expectations at the beginning of the year.
In the first nine months, the impairment charge was £4.4bn, down from £7.3bn in the same period a year ago.
The £583m loss for the nine months was narrower than the £3.8bn reported in the same period a year ago.
The total bill for the sale of the insurance, which was intended to cover payments on loans in the event customers ran into financial difficulty, has now reached £5.3bn for Lloyds alone. The major high street banks combined have incurred costs of more than £10bn.
António Horta-Osório, chief executive, conceded that the bill may rise even further as the bank was continuing to assess the level of claims being made, some of which the bank insists are being made by claims management firms for customers who do not have policies with the bank.
"A number of uncertainties remain as to the eventual cost to the group of PPI complaints. However, we will continue to review closely our estimates based on our further experience of complaints volumes and seasonality, uphold rates and redress costs and by the time of our full year 2012 results announcement on 1 March 2013, we expect to have a higher degree of confidence in forecast trends and the ultimate likely cost of PPI," the bank said.
The PPI provision helped drive the bank, just under 40% owned by the taxpayer, to a pre-tax loss of £583m for the first nine months of the year.
While the volume of PPI complaints has slowed in the third quarter, it is still higher than the estimates the bank made in the second half of the year.
Even so, the extra £1bn provision was less than the £2.3bn that some analysts had feared. The bank's shares rose 3% to 42p but remain well below the 73p average price at which the taxpayer bailed out the bank, a loss of around £5bn.
Horta-Osório insisted he had "absolutely no regrets" about his ground-breaking decision in March 2011 to withdraw from an industry attempt to fight PPI claims through the courts which led to provisions being taken across the industry. Barclays' provision has reached £2bn while Royal Bank of Scotland, which reports on Friday, and HBSC, which reports on Monday, have so far announced provisions of £1.3bn and £1.1bn respectively. Santander's cost is around £500m.
Lloyds was the first take a provision, of £3.2bn, in May 2011 which led to bonuses being clawed back from his predecessor, Eric Daniels, and other former and current Lloyds bankers.
Without taking the provision, the bank "would have been building on false foundations", said Horta-Osório who became chief executive at the start of March 2011.
The Portuguese-born banker insisted Lloyds was ahead of its strategic plan – which will eventually to lead to almost 45,000 job cuts across the bank which includes brands such as Halifax and Scottish Widows.
The bank said it wrote to the Financial Ombudsman Service last month to suggest claims management companies pay the £850m charge associated with processing claims they bring. Lloyds insists that 50% of the claims it receives are "duplicates or dubious" but Natalie Ceeney, head of the FOS, told MPs this week that too many claims were being thrown out by the banks. Lloyds insisted on Thursday that this was not the case and had asked Ceeney for the data.
As well as the PPI scandal, the bank is also making claims in German courts for policies sold by Clerical Medical through intermediaries in Germany. Another £150m provision was taken in the third quarter, taking the total to £325m.
Despite the loss in the nine months, Horta-Osório said the bank had made "further significant progress this quarter".
"We have a strong commitment to helping Britain prosper, and our early participation in the funding for lending scheme is enabling us to extend further financing to businesses and customers in the UK. As part of this focus on supporting sustainable economic growth, we are continuing to increase SME lending on a net basis in a contracting market and provide mortgages to one in four first-time home buyers," he said.
There was better news from the bank in terms of provision for loans which have turned sour as it lowered its guidance for the full year 2012 impairment charge to approximately £6bn, around £1.2bn lower than its expectations at the beginning of the year.
In the first nine months, the impairment charge was £4.4bn, down from £7.3bn in the same period a year ago.
The £583m loss for the nine months was narrower than the £3.8bn reported in the same period a year ago.
