Lloyds shrugs off PPI charge to report £1bn profit

Lloyds Banking Group set aside a further £1.4 billion ($2.2 billion) to compensate customers for its mis-selling of loan insurance.

But Lloyds also highlighted a new set of legal issues related to payment protection insurance (PPI) that may wreak havoc with its own financials in H2 and those of its rivals.

The bank said its core capital ratio rose to 13.3 per cent at the end of June up from 12.8 per cent at the end of 2014, post the dividend payment.

Lloyds described the additional provision as “disappointing”, adding: “It mostly reflects higher than expected reactive complaints with higher associated redress”.

The addition follows a £117m fine by the Financial Conduct Authority earlier this year over its previous mishandling of PPI claims.

It is one of a number of scandals, including the attempted rigging of benchmark interest and foreign exchange rates, which have undermined public trust in Britain’s banks.

The chief executive Antonio Horta-Osorio said: “We are disappointed to announce a further £1.4bn of provisions today, but we do so from a position of financial and capital strength”.

Having dropped 1.5 per cent in Friday trading, shares are now priced at 84.6p, still well above the 73.6p break-even price for the Treasury.

Brenda Kelly, head analyst at London Capital Group, said: “The introduction of a dividend is well timed and will make it much easier for the government stake disposal in due course”. The consensus forecast was £1.9bn, according to data provided by Lloyds.

This may force the Chancellor to intervene to honour an election pledge to offer retail investors a discounted buy-in. The Guardian has previously described a retail sale of Lloyds shares as the “ugliest” of “pre-election bribes”.

A rough tally of the existing data suggests there could be an additional £10bn of total PPI charges left in the pipeline if “Plevin” paves the way for a new set of complaints via the Consumer Credit Act.

Shares fell as this overshadowed an improved half-year performance.

Horta-Osorio said: “I personally think that the current dripping process has been very successful. If any bank fails to do this, the regulator must step in”.

The future looks bright.

Lloyds’ strategy includes developing its digital offering and reducing costs.

Despite these payouts, the bank still increased profits by 38%. The industry has paid more than 20 billion pounds in the costliest scandal since the financial crisis.

Meanwhile, the United Kingdom government is slowly selling down its stake after mandating an investment bank to drip shares into the market.

Lloyds’ total provisions for PPI have now reached 13.4 billion pounds.

Of that, some £2 billion has gone on administration and a similarly large amount to claims management companies, who still account for two thirds of all claims.