Profits rise at Lloyds Bank despite new PPI provision

Lloyds Banking (LON:LLOY) set aside an extra £1.4bn for PPI mis-selling as it missed profit expectations in the first half of the year.

Lloyds, which is Britain’s biggest retail bank and sold more of the policies than rivals, said the charge was disappointing and reflected a higher-than-anticipated rate of complaints.

The bank released its half-year results this morning, showing healthy profit growth – £1.19bn, compared with last year’s £863m.

The British government has cut its stake in Lloyds to less than 15pc from 43pc and British finance minister George Osborne plans to sell some of the remainder to private shareholders. So far the bank has provisioned GBP13.4 billion to cover PPI claims.

Underlying profit, which strips out costs such as the provision for PPI, increased to GBP4.38 billion from GBP3.82 billion, as revenue increased due to higher net interest income, stable costs and lower impairment charges for bad loans.

Earlier this month, the Financial Times estimated the “drip feed” disposal has brought in £13bn, with the remaining shares valued at around £9bn.

“Today’s results demonstrate the strong progress we have made in the first half of the year”, Horta-Osorio said. Its bill for the mis-selling scandal has now risen to £13.4 billion.

Lloyds is believed to have paid out £30m to packaged account holders so far, with around a third of complaints upheld. And after paying an interim dividend of 0.75p a share, the boss says surplus capital – amounts in excess of 12% CET1 plus a further year’s ordinary dividend – will be returned to shareholders either through special dividends or share buy-backs.

“We have delivered significant improvements in both underlying and statutory profitability, while at the same time strengthening the balance sheet, improving our customers’ experiences and continuing to support and benefit from UK economic growth”, Horta-Osório said in a statement. The retail offer is expected to take place in February or March 2016 and would see a portion of shares sold at a five per cent discount to their market value.

Lloyds received a £20bn bailout from the UK taxpayer during the 2008 financial crisis.

Broker Investec pointed out that the loss per share of 0.1p for the second quarter was a full 1.1p below consensus estimates, while the CET 1 capital ratio of 13.3%, while solid, was also light against consensus forecasts of 13.7%.

This was in spite of a £1.4bn fine relating to a PPI investigation and £660m charge stemming from the sale of TSB.