Lloyds warns mis-selling could cost it an extra $2.2bn

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Mon, 2019-09-09 22:10

LONDON : Lloyds Banking Group will set aside up to an extra
£1.8bn ($2.2bn) to settle mis-selling claims in Britain’s
costliest consumer banking scandal, and said it was suspending its
2019 share buyback program.

Banks are putting aside more money to pay claims against
mis-sold payment protection insurance (PPI) following a rush of
consumer enquiries about compensation ahead of the deadline on Aug.
29.

PPI policies were sold alongside a personal loan or mortgage to
cover repayments if borrowers fell ill or lost jobs, but many were
unsuitable.

The PPI saga has already cost lenders more than £36bn in
payouts, with analysts estimating the final bill could top £50bn
.

RBS said last week it faced additional costs of up to £900m,
while Clydesdale Bank made a fresh 300-450m pound provision.

As Britain’s biggest domestic lender, Lloyds has been the most
exposed to PPI and has already paid out more than £20bn .

Lloyds said on Monday it had received 600,000-800,000 requests
for information about PPI per week in August, well above its
expectations of around 190,000 per week.

As a result, it expects to set aside a further £1.2-1.8bn in
its third quarter results to cover payouts.

The bank’s shares fell more than 2% in early trading, before
paring some losses to stand down 0.7% at 0920 GMT.

Lloyds also said it had received a claim submitted by the
Insolvency Service’s Official Receiver on behalf of bankrupt
consumers, pushing costs higher.

It added the charge would dent its profitability and scrapped
guidance for a return on tangible equity of around 12% this year.
It also warned the increase in its capital ratio in 2019 would be
below its 170-200 basis points per annum guidance.

The lender made PPI provisions worth £650m in the first half of
this year, meaning the total combined cost for 2019 could hit as
much as £2.45bn , equivalent to 41% of its 6bn pretax profit last
year. The bank set aside £750m for PPI in 2018.

Lloyds had been expected to make a further provision following
its rivals’ moves, with analysts at KBW saying they had
downgraded the bank last week partly due to the expected charge.
KBW said the top end of the charge at 1.8bn was marginally better
than its worst case scenario.

Barclays could take a provision of up to £700m when it reports
third quarter results on Oct. 25, KBW estimated based on provisions
taken by the other banks.

A spokeswoman for Barclays declined to comment.

Lloyds was given some breathing space on capital in May, when
regulators reduced its required core capital ratio to 12.5% from
13%, equating to around £1bn .

Lloyds is continuing to target paying a dividend and said it
would make a decision on surplus capital at the end of the
year.

Ian Gordon, analyst at Investec, said he believed Lloyds’
dividend for this year would be “perfectly safe” despite the
forthcoming charge, but warned that if it came in at the upper end
it would likely delay buybacks until March next year.

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Source: FS – All-News-Economy
Lloyds warns mis-selling could cost it an extra .2bn