Lloyds Banking Group will lead the way this week as the banks unveil extra significant hits from the payment protection insurance (PPI) mis-selling scandal alongside third-quarter trading results.
Lloyds, still 9 per cent owned by the state after the lender’s £20 billion taxpayer bailout, is expected to post another provision for PPI redress of between £800 million and £1.5bn.
The bank, which also owns Bank of Scotland, is easily the worst impacted by the scandal, currently having put aside £16bn – more than half the industry’s total of £30bn.
The Q3 results are the first occasion most banks have had time to revisit their provisions since the Financial Conduct Authority (FCA) earlier this year extended the deadline for PPI claims to June 2019 from April 2018.
Ian Gordon, banking analyst with Investec, has pencilled in a further £1bn provision from Lloyds for Q3 2016, and an extra £1bn in total over the following two years, which would take the bank’s exposure overall to £18bn.
Citi expects Lloyds chief executive Antonio Horta-Osorio to announce a top-up of £1.5bn when he reports results on Wednesday, while UBS is forecasting a more modest £800m. “Lloyds was particularly exposed to PPI because it had a high market share of unsecured personal loans which was PPI’s crossover product,” said Gordon.
“It was a product they sold enthusiastically, and success rates of 90 per cent [protection insurance on agreed loans] was not unusual.”
Lloyds’s latest results are also expected to show a pension hit following the Brexit vote last June, as will many of its rivals, with company schemes having been hammered in the short term by falling bond yields, and in the longer term by greater longevity.
One analyst said: “That will undoubtedly mean Antonio is quizzed as to whether there will be any knock-on effect on Lloyds’ dividend policy.”
The bank resumed paying dividends in the second half of 2014 after a lengthy suspension ordered by the European Commission in return for its taxpayer lifeline in 2008.
Investec is forecasting an underlying pre-tax profit at the bank for Q3 of £1.98bn, compared with £1.97bn in the same period of 2015.
Royal Bank of Scotland reports on Friday, with analysts forecasting a loss of £231m, against profits of £952m a year earlier, due to restructuring and legal costs.
RBS is not expected to make any sizeable PPI provision as it added an extra £450m after the claims deadline was extended. Barclays also reports this week and is expected to have benefited from a stronger investment banking performance, with the City expecting a 9 per cent rise in profits to £1.3bn, and an extra PPI charge of £500m.