Merely days after squeezing through a European banking health check, Lloyds Banking Group has been hit with another sizeable mis-selling charge.
Relating to the bank’s handling of the payment protection insurance (PPI) scandal, which came to light in the wake of the financial crisis, the £900m charge confirmed on 28 October brings the total cost required to cover Lloyds mis-selling of PPI to £11.3bn. The latest charge means that Lloyds has paid out more than any other affected bank, as well as close to half the total bill for the entire British banking industry. The PPI bill for Britain’s five biggest banks now stands at more than £22bn.
Further, it appears that the bank is still not out of the woods. Analysts have predicted that Lloyds will be required to set aside an additional £1bn to cover potential PPC compensation claims made in 2015. According to Lloyds' finance director George Culmer, PPC complaints in the third quarter of 2014 rose by around 2 or 3 percent compared with Q2, however new complaints are down by 18 percent on the year. The group also noted that should there be a similar level of complaints registered in the fourth quarter, as in Q3 the required provision would increase by around £600m.
Lloyds’ most recent PPI charge overshadowed a raft of other news released by the bank. In a statement Lloyds confirmed a 41 percent rise in underlying profits for the third quarter, with profits rising to £2.2bn following an improvement in bad debts. However, the bank also confirmed its previously reported plan to dispense of 9000 jobs over the next three years. The job losses will be the result of around 200 branch closures as the bank attempts to digitise its business.
Despite its recent tribulations, Lloyds is still confident that it will be able to pass the Bank of England’s stress test in December. The BoE’s test will assess whether Lloyds, the worst performing British bank in European testing, would be able to withstand a new financial crisis. Should Lloyds fail the test, it would be forbidden from paying its first shareholder dividend since it was bailed out by the British government.