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Libor net closes in on Lloyds as PPI bill rises to £4.2bn
Taxpayer-backed Lloyds Banking Group is trying to get its business back on track, but scandals keep getting in the way.
Lloyds Banking Group has increased its provision for payment protection insurance (PPI) mis-selling by more than £1 billion to £4.2 billion after a surge in complaints from customers.
The bank was the first to quantify its exposure a year ago, and the latest increase from its original £3.2 billion provision shows that the issue has not gone away for the banking industry.
Lloyds, which is 41% government owned, said today that £375 million of the £1.075 billion increase was taken in the first quarter. It warned that there were still ‘a number of uncertainties as to the eventual costs’ of compensating customers who bought expensive and often unnecessary loan cover.
Chief executive Antonio Horta-Osario said in a statement accompanying the half-year results: ‘Mis-sold payment protection insurance policies are an industry legacy issue but by redressing those affected quickly we continue to do the right thing for our customers. We will tackle issues from the past in a way that will, in the long run, allow us to earn back customer trust and confidence.’
The bank also revealed that some of its employees had been caught up in the international investigation into the rigging of the inter-bank Libor interest rate, which has rocked its rival Barclays. Some members of the group received subpoenas and requests for information from government agencies and were co-operating with their investigations, the bank said.
It added that employees had been named as defendants in private lawsuits, including class-action cases in the US over the manipulation of Libor.
‘It is currently not possible to predict the scope and ultimate outcome of the various regulatory investigations or private lawsuits, including the timing and scale of the potential impact of any investigations and private lawsuits on the group,’ it said in its half-year results statement.
Although Lloyds had a small investment banking business, analysts at Liberum Capital have estimated that its total costs from the Libor scandal could ultimately reach £1.5 billion.
Legal woes in Germany
Meanwhile, the bank has also suffered a legal setback in Germany. Earlier this month the Federal Court of Justice, Germany’s highest civil court, sent five cases involving its insurance subsidiary Clerical Medical Investment Group back to the appeal courts. The cases involve a dispute over a high-yielding investment plan sold through financial advisers. Lloyds previously made a £175 million provision against losing the case, but this may now not be enough.
All these provisions took the shine off the results which, according to chief executive Antonio Horta-Osorio, showed the bank continuing to strengthen its balance sheet and taking steps to make its business less risky against a worsening economic backdrop.
The bank, which was forced to sell 632 branches to the Co-Operative Bank at a knockdown price, saw pre-tax losses for the six months to 30 June fall to £439 million from £3.2 billion a year ago. Underlying income from its core business fell 11% to £8.6 billion, with net interest margin slipping to 2.32% from 2.43%.
Lloyds (LLOY.L)'s share price firmed 0.25p to 29.5p, valuing the bank at over £20.6 billion. The shares have gained nearly 3p this year.
Horta-Osorio can only say the PPI scandal is a ‘legacy’ issue if Lloyds changes its culture and stops participating in mis-selling. Lloyds’ presence on a list of banks that are investigating the mis-selling of interest rate swaps to business customers shows that it has a long way to go to establish a culture of trust with its customers. Horta-Osorio needs to put as much effort into shoring up the bank’s moral balance sheet as he has into its finances.
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by Gavin Lumsden on Jun 28, 2016 at 13:41