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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.

Libor net closes in on Lloyds as PPI bill rises to £4.2bn

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.’

Libor fallout

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.

Citywire Verdict:

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.

10 comments so far. Why not have your say?

Rob Walker

Jul 26, 2012 at 13:16

The authorities must think the public are a bunch of monkeys when it comes to the LIBOR scandal. Having hung Barclays, Bob Diamond et al out to dry, after they decided to co-operate and settle any fines, they can now drip-feed any bad news about all the Government-owned banks' involvement, knowing that it's all yesterday's news now and unlikely to draw the same hostile reaction from press, public, politicians etc. Well orchestrated eh? - but not very just and typical of the way spin is alive and kicking. And there seems to be no-one prepared to fight against this sort of deception so we just have to swallow it.

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Gus Gill

Jul 26, 2012 at 13:19

Can someone ot there please tell me the difference between Royal Dutch Shell A & B shares and which should a small investor purchase? Thanks

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steven fieldfare

Jul 26, 2012 at 14:44

A surge in customer complaints or a 4U lawyer bandwagon sensing easy money? Does anyone know what percentage of claims come through lawyers and what percentage of claims are proven unfounded?

Better for Lloyds to focus on another legacy issue: how private shareholders are to be recompensed for Blank and Daniels purchase of Halifax without due diligence, especially now with enforced loss making sale of Branches.

After PPI, compensation for false shareholder prospectuses?

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Jul 26, 2012 at 15:44

I doubt anyone will be able to prove any part of governments involvement with the Hbos sale. The government of today through one of their agencies is more likely to just land it on LLoyds. The Libor case is more widespread between Banks and Governments, But again Govt. and its agencies will be working hard to distance themselves and apportion blame elsewhere. But if you were about to take several million severance money, you might be prepared to go quietly.

The actual damage however to individual persons through any Libor manipulation, might actually turn out to have benefitted you.

Certainly the Lawyers ( ambulance chasers ) will see this yet again as potentially lucrative. In the meantime the prolongation of such mis-selling/manipulation issues by Government. is actually shooting the taxpayer in the foot.

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Alan Morrice

Jul 26, 2012 at 15:45

Gus Gill,

Look up the RDS company website. All will be explained.

Basically, If you're a UK resident and taxpayer buy the 'B' shares. ('A' share dividends are paid in Euros and are subject to Dutch taxation)

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Jul 26, 2012 at 17:50

It is a mystery to me how the PPi bill amounts to so much. Surely individuals can only be compensated for their losses. How did so many people lose so much.? In total the banks are allowing tens of billions ! Can someone explain the arithmetic ?

Also if this amount of money gets to consumers won't this surely lead to a good outcome i.e less personal debt and/or more spending.

Am I missing something ?

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Mark Lance

Jul 26, 2012 at 18:43

The problem with the compensation being so high, is when banks sold the policies they charged interest on them as well e.g. 10yr yr loan of £10,000 at 15% interest with £1,000 of insurance at 150% total interest as well = a cost of £2500 to the unsuspecting consumer.

As this was done on pretty much every loan and credit card sold, bonuses were paid and taken?

Unfortunatly it amounts to so much, as they took so much and if they wanted to or were forced to , they could have given it back to everyone. Not too surprisingly they didn't.

which they haven't otherwise the bill would be double. Banks now delete any financial record over 6 yrs , as they don't have to keep records longer, so not too surprisingly they are deleting peoples compensation every day too so that should reduce their bill and get them back into profit quicker, banks underhand no!!!

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James Park

Jul 26, 2012 at 19:01

When I was a younger person I was led to believe that there was a lot of corruption in Third World countries with only a very limited amount in this country.

I am beginning to change my mind. I think the whole system is rotten to the core.

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Jul 26, 2012 at 19:29

James Park. Yes I follow your arithmetic but

- the banks still seem to be over-providing for their liabilities.

- where did all the money go - in bank losses and bonuses ?

- when compensation gets into the hands of consumers won't this be good for the economy ? A different way of getting banks to lend which they otherwise are reluctant to do.

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Mark Lance

Jul 26, 2012 at 22:29

Hi Moylando

They did make big profits and andyone in mid management or above got paid handsomely these things were sold from the 80s up to about 2009

I think it's more of an arrogant case of under provided thinking they could get out of paying the true figure back. This is the banks who turned down every case a few yrs back then the Fsa reported that against some companies they upheld over 90% of claims banks turned down.

Then the banks down tools for about 8 months and did a judicial revue, but lost the court case.

It's all been a big shambles and if the banks or the regulators had done something a few yrs ago e.g goodwill gestures to everyone they could of come out smelling of roses.

It will be interesting to see where the libor scandal goes. At least on a positive note for shareholders is opinion couldn't get much worse!

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