Profit down 15% at Lloyds Banking Group as PPI claims hit

Britain’s largest mortgage lender, Lloyds Banking Group, posted a 15 per cent decline in third-quarter profit as it took a £1 billion (€1.1bn) charge to compensate customers who were wrongly sold loan insurance.

Pretax profit fell to £811 million (€906m) from £958 million (€1.07 bn) a year earlier, the London-based bank said in a statement. Excluding the charge and other one-time items, profit fell 3 per cent to £1.91 billion (€2.13 bn). That fell short of the £2.04 billion (€2.28 bn) average of six estimates compiled by Bloomberg News, as impairments climbed more than most analysts expected.

The bank has now taken more than £17 billion (€19 bn) in charges for payment protection insurance over the past five years, more than any other major British lender.

The increase in PPI provisions come after the UK's Financial Conduct Authority pushed back a proposed deadline for consumer complaints by one year to mid-2019, forcing lenders to set aside additional funds for compensation. Britain's biggest lenders have now taken more than £30 billion (€33.5 bn) in charges between them since the inception of the PPI scandal in 2011.

The net interest margin, the difference between income from lending and the cost of funding, fell to 2.69 per cent from 2.74 per cent in the previous quarter. Impairments climbed 30 per cent from a year earlier to £204 million (€227m), more than the £184 million (€206) analysts estimated. Revenue climbed 1 per cent to £4.28 billion (€4.78bn).

Total income for the quarter was £4.3 billion (€4.8bn), broadly in line with the third quarter 2015.

“The outlook for the UK economy remains uncertain, however the strength of the recovery in recent years means the UK is well positioned,” the bank said in a statement.

Lloyds also reported a £740 million deficit in its pension fund, which has been hit by falling bond yields in recent months.

Rescued in a £20.5 billion taxpayer bail-out during the financial crisis, Lloyds is the first major British bank to report results that fully capture the period after the referendum results.

Lloyds has fallen 24 per cent this year in London trading for the second-worst performance among Britain’s five-largest banks, behind Royal Bank of Scotland Group. The British government resumed selling its 9.1 per cent stake in Lloyds earlier this month, abandoning a previous plan to hold an offering for individual investors.

Chief executive Antonio Horta-Osorio is searching for ways to prop up Lloyds’ dividend and profits against a more testing economic environment and the effects of lower-for-longer interest rates caused by the vote to leave the EU.

Since June’s referendum, shares in Lloyds have fallen by about a quarter, partly reflecting their heavy exposure to any downturn in the British economy.

Lloyds said total loans and advances to customers fell £1 billion to £452 billion compared to three months earlier. - (Bloomberg, Reuters)