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Lloyds hikes dividend despite compensation blow

A further £1.1 billion in insurance mis-selling costs and a £283 million mortgage borrower compensation scheme dent bank's half-year profits.

Lloyds hikes dividend despite compensation blow

Misconduct issues have again overshadowed results from Lloyds (LLOY) with the bank’s biggest half-year profit in eight years and a rise in the interim dividend offset by further provisions for loan insurance mis-selling and a £283 million compensation scheme for mortgage borrowers.

Lloyds’ shares dropped 2.3% or 1.6p to 67.4p after reporting statutory pre-tax profits of £2.5 billion pounds for the first six months of the year, up 4% on a year ago.

The small rise in profits fell slightly short of analyst forecasts, dragged down by the bank setting aside a further £700 million in the second quarter for redress to customers mis-sold payment protection insurance (PPI). This follows a £350 million provision in the first quarter and takes the bank's total bill for PPI to £18 billion, the largest in its sector.

The bank, which earlier this year exited eight years of state support following the financial crisis, has also been ordered by the Financial Conduct Authority to compensate mortgage borrowers unfairly charged litigation fees when they fell behind on repayments.

Refunding fees to the estimated 590,000 customers affected by this in 2009-2015 will cost the bank around £283 million.

The misconduct issues come soon after Alastair Mundy, manager of the Temple Bar (TMPL ), revealed he had sold the bank’s shares due to rising regulatory and competitive pressures on the business.

Excluding one-off and exceptional items, underlying profits rose 8% to £4.49 billion in the six months to 30 June with total income up 4% to £9.27 billion and operating costs 1% down at just over £4 billion.

This enabled an 18% increase in the interim dividend to 1p a share, ahead of expectations of a 12% rise. The bank only resumed dividend payments two years ago after a six-year break following its near collapse in the 2008 credit crunch.

This is good news for investors, including star fund manager Neil Woodford Neil Woodford, who have bought the shares for their dividend prospects.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: ‘The lion’s share of Lloyd’s dividends are paid at the end of the year, and this latest increase hints that there may be further treasure ahead for income-seekers.

‘Overall this is a strong set of numbers from Lloyds, blighted, but not overshadowed, by misconduct costs. The government has exited the bank and is now no longer selling stock in the market, which removes a significant downward pressure on the share price.’

Josephd Dickerson, equity analyst at Jefferies, maintained his ‘hold’ rating and 87p price target on Lloyds shares. He pointed to a small rise in profitability with the bank’s net interest margin, or gap between its savings and lending rates, lifted to 2.82% from 2.8% at the end of March, with the bank suggesting it could reach 2.85% at the end of the year.



7 comments so far. Why not have your say?

Andrew Stevenson

Jul 27, 2017 at 12:02

How on earth can there still be 6,000 people a week trying to claim PPI compensation ?

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Anonymous 1 needed this 'off the record'

Jul 27, 2017 at 13:11

AS, I think it's called the compensation culture. I have for a while thought that at least some of these claims cannot be real. Also I guess the default is that all and every PPI claim/policy is true. 6,000 per week is 300,000 per year. Are there than many (re)mortgages granted every year? I have been tempted to put in a claim myself, I don't live far from Merseyside.

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Jul 27, 2017 at 14:57

There are still huge misconduct issues relating to Business customers that remain unaddressed

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Jul 27, 2017 at 16:25

I felt similarly about PPI claims and it was only when I noticed the potential in the area of 'mortgages' that I decided to test the water. Mainly because I found that most of the Ts and Cs around the mortgage had been handled by the conveyancing solicitors and not fully passed to me. The detail about charges such a mortgage insurance was also very sketchy.

I then found that fees of 36% plus VAT in one typical claim company case would be charged on the final compensation sum awarded. That sum would include the significant interest on the original charges and could well form the biggest chunk of the compensation. As a 40% tax payer, my tax due would be charged before release of the compensation payment by the bank. For example if awarded £1000 compensation I could receive as little as £600 but my company would then charge me £432 as a fee - net gain to me of £168!! With HMRC and the Claims company getting the lion's share of any pay out, is it any wonder that the Government has been very casual about the activities of Claims Companies? When I told the company about my calculations and that it was not worth me progressing,they immediately offered to drop their fees to 20% plus vat. I declined and found someone charging 10% plus vat. Scams or what!

As a Lloyds shareholder pre PPI and Brown I felt even more ripped off hence I am pursuing the investigation to get something back.

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Jul 27, 2017 at 17:44

Their is a class action against Clydesdale & Yorkshire Bank full details will be provided if you email henrywilson879

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Max P

Jul 29, 2017 at 12:04

I have no sympathy at all for PPI claimants, they are just as parasitic as the PPI claims companies themselves. Caveat Emptor, people need to fully understand contracts before they sign them. This whole PPI debacle as put a drag on the UK economy. Having said all this tighter regulation of lenders is no bad thing.

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Jul 31, 2017 at 18:29

latest report on Lloyds 31/07/17 of interest to lloy holders.

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