Lloyds sets aside further $2.2 billion for mis-selling redress

LLOYDS has posted a 38 per cent surge in first-half profits despite setting aside a further £1.4billion to cover compensation costs from the mis-selling of payment protection insurance.

But after the PPI charge and other one-offs – including £660m handed to Spanish bank Sabadell as part of its £1.7bn takeover of former Lloyds subsidiary TSB – pre-tax profits were £1.2bn.

Lloyds was responsible for issuing just under half of all PPI policies, implying that the total sum which may have ended up in the pockets of the claims industry might already have hit £3.5bn.

Last month the Financial Conduct Authority (FCA), fined Lloyds £117m over the way it dealt with up to 2.3m PPI claims.

Group Chief Executive António Horta-Osório said, “The continued improvement in financial performance and strong start to the next phase of our strategic journey in the first six months of the year position us well for the future, despite the uncertainties around the economic, regulatory, competitive and political environment”.

But it warned that if complaints remain at the same level, it will need to set aside a further £1bn at the end of the year and another £2bn next year.

Lloyds has taken a total of £13.4bn in charges for PPI so far, more than any other bank.

The British government bailed out Lloyds during the financial crisis in 2008 but has been reducing its share in recent months, and this now stands at less than 15 per cent.

US hedge fund ValueAct has built up a 5.44 per cent stake in the group, which yesterday reported a 32 per cent slump in profits for the first half of the year, and shares powered 44.5p or 6 per cent to 794p to put it at the top of the Footsie risers’ board.

Finance director George Cumber said the number of claims and the average compensation paid per customer were higher than expected in the first half.

The bank’s loan impairment charge fell 75 per cent to 179 million pounds from a year earlier.

This is expected to make the stock more attractive for a “Tell Sid” style sell-off to ordinary retail investors that is being planned, likely to come at the end of the continuing return to the private sector.

Mr Horta-Osorio said: “I personally think that the current dripping process has been very successful”.

He added that the lender was undergoing a “digital revolution” with more than 11 million online users and almost six million using its mobile services. “This brings the total to £13m, the highest of all the UK banks”.