LLOYDS Banking Group is set to take a further £1 billion hit for the payment protection insurance (PPI) mis-selling scandal when it posts its half-time trading results this week.
The latest blow will take the bank’s provisions on the matter to more than £13bn – Lloyds being by far the most exposed to the long shadow of PPI redress that now exceeds £20bn industry-wide.
Chief executive Antonio Horta-Osorio and chief financial officer George Culmer have repeatedly refused to call an end to the rising bill for PPI costs and compensation.
Richard Hunter, head of equities at broker Hargreaves Lansdown, said: “It seems that Lloyds cannot yet shake off the shackles of the PPI mis-selling fiasco. Even after having been responsible for approximately half of the amount that banks have paid in fines so far, the hope had been that the overall situation was drawing to a close.
“News of any further PPI fines for Lloyds will not be taken positively by the stock market, but will be unlikely to derail the generally strong and recovering performance which the bank has been producing of late.”
Lloyds said at its full-year results earlier this year that the volume of reactive PPI complaints in 2014 fell 22 per cent on 2013.
However, it warned that “during 2014 there has been a more sustained level of claims management company activity and as a result the group is forecasting a slower decline in future volumes than previously expected”.
Last month the Financial Conduct Authority fined Lloyds and its Bank of Scotland subsidiary £117 million – the regulator’s highest ever retail fine – for failing to treat customers fairly when handling PPI complaints between March 2012 and May 2013.
City analysts think the latest hefty provision by Lloyds on the issue may be mirrored to a lesser extent by other big banks in the interim results reporting season starting this week as it is the final time provisions for PPI redress will be tax-deductible.
Ian Gordon, banking analyst at Investec, said in a note that the looming tax change offered banks “ample incentive to ‘go large’” on their latest provisions.
But the strong profits recovery at Lloyds is likely to have continued, with analysts expecting an underlying pre-tax profit, excluding exceptional items, of about £4.1bn in the first trading half, up from £3.8bn in the same period in 2014.
The bank restored the dividend at the full year after a six-year gap since the financial crisis and taxpayer bailout with a 0.75p payment, and the City consensus is for the same level of payment in the interim divi when results are posted on Friday.
Horta-Osorio is expected to say that costs and bad debts have continued to come down amid decent revenues.
Rival Royal Bank of Scotland reports on Thursday amid speculation over the timing of the UK government’s first move to sell off shares in the taxpayer-backed lender.
Chancellor George Osborne has already said he wants to start selling shares in RBS by the end of the year and it is thought this plan could begin as soon as September.
RBS results come after a tough few months for the group in the wake of yet another IT blunder and further fines for the forex rigging affair.
The group slumped into the red by £446m in the first quarter after putting aside cash to cover the forex scandal, as well as restructuring charges. Half-year results are set to show a bottom-line loss of some £300m, according to a number of City analysts.