LLOYDS Banking Group yesterday unveiled an unexpectedly large £900 million hit on mis-selling payment protection insurance (PPI) in its third trading quarter, just days after it narrowly passed a European health check.
The extra charge, compared with the City’s expectation of a new provision of just half that, took the shine off a 40 per cent jump in underlying profits to £2.2 billion. Statutory pre-tax profits – including one-offs dominated by PPI – came in at £751m.
The bank’s total bill for PPI redress, where people were sold policies to cover repayments they did not need or would be ineligible to claim, is now £11.3bn – nearly half the industry total.
It came as Lloyds chief executive Antonio Horta-Osorio unveiled the group’s new three-year strategy up until 2017, saying there would be 150 net branch closures and £1bn spent on meeting the “exponential” switch in people doing banking from their mobile phones, tablets or computers.
Horta-Osorio also confirmed there would be a further 9,000 redundancies group-wide following the 15,000 staff that have been shed since he took over in 2011.
About 7 per cent of the earlier layoffs were compulsory, with the rest a mix of natural wastage and redeployment within the group.
The new PPI charge, which contributed to a 2.4 per cent fall in the bank’s share price to 73.5p, came after the part-taxpayer owned institution only just passed a stress test on the strength of its balance sheet by the European Central Bank.
Lloyds, which was the worst-performing UK bank in the ECB league table, faces a further Bank of England test in December. That one is seen as more challenging for the group, as it will measure its financial robustness against a theoretical 35 per cent slump in UK house prices and a rise in interest rates to 6 per cent from the current 0.5 per cent.
Lloyds finance director George Culmer admitted yesterday it was premature to say there would be no more PPI provisions.
But he said he was “delighted” the lender had passed an EU stress test targeting its heartlands of retail banking and commercial property, and believed it would also pass the BoE exam.
Culmer added he remained confident that Lloyds would be cleared by UK regulators to resume dividend payments with a “modest” payout for 2014 when it reports its annual results in February.
The bank, still 25 per cent owned by the taxpayer, was banned by Brussels from paying dividends as the price of its state bailout in the 2008 financial crash, which saw it acquire distressed rival HBOS, owner of Scottish Widows and Bank of Scotland.
Lloyds’s new strategy, which includes a further £1bn of costs cuts, is targeting a cost/income ratio of 45 per cent by 2017 from an already sector-leading near-50 per cent now.
Horta-Osorio said he believed it would be achieved by revenue growth as much as cost-cutting, with the bank committed to lending an additional £30bn to the UK economy over the next three years.
The chief executive said he wanted to also grow business in areas where Lloyds was under-represented such as credit finance, credit cards and mid-corporate lending.