LLOYDS Banking Group has been forced to make a further hefty provision for payment protection insurance (PPI) claims in anticipation of a late flurry of pay-outs, sending shares down three per cent and causing half-year profits to fall short of forecasts.
And Lloyds, the UK’s biggest mortgage lender, signalled its concerns over the protracted Brexit uncertainty, declaring that the impasse was undermining business confidence.
The Bank of Scotland owner caught the City off-guard by making a £550 million provision for PPI mis-selling claims in the second quarter.
The bank said the charge had been driven by a surge in information requests ahead of the final claims deadline of August 29, which it expects to lead to higher total complaints and associated administration costs.
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Lloyds has paid out more PPI compensation than any other major UK bank, with the latest provisions taking its total bill to in excess of £20 billion. The bank made a total PPI provision of £650m for the half-year to June 30, dragging pre-tax profits 7% lower to £2.9bn for the period.
Its latest PPI charge was announced a day after CYBG, owner of Clydesdale Bank, reported that it had recently seen an increase in requests for information regarding PPI ahead of the August 29 deadline.
Michael Hewson, chief analyst of CMC Capital Markets UK, said: “There was always the prospect of another lumpy provision in the Q2 numbers with the new deadline for PPI claims fast approaching, however the extent of the provision was a little unexpected.”
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Russ Mould, investment director at stockbroker AJ Bell, noted: “You cannot help but get the feeling that the 29 August Payment Protection Insurance claims deadline cannot come quick enough for the big banks.”
Lloyds’ PPI woes came to light as chief executive Antonio Horta-Osorio signalled the bank’s increasing worry over Brexit. Having warned in May that the protracted uncertainty “could further impact the economy” – in contrast to his previously more sanguine comments over Brexit – the Portuguese banker returned to the theme yesterday. He said the uncertainty is “having an impact on business confidence and leading to some softening in international economic indicators”.
Noting that Lloyds’ performance is “inextricably linked with the health of the UK economy”, Mr Horta-Osorio added: “Companies’ investment and employment intentions have both declined in the second quarter of 2019 while global growth has softened and interest rate expectations have declined.
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Despite this the consumer sector remains robust with increased levels of employment and rising real wages, supporting consumption and GDP growth.”
The Lloyds chief declared the bank’s first-half performance had been good despite the ongoing economic uncertainty, with an interim dividend of 1.12p per share, up 5% on last year, declared.
The bank said its net interest margin – a key performance measure – was a resilient 2.9%, down marginally on last year’s 2.93%. Net interest income dipped to £6.14bn from £6.34bn, though total costs fell to £4.05bn from £4.28bn. A “robust” underlying profit of £4.2bn was reported for the first half, broadly unchanged from the same stage last year, with the bank noting slightly lower net income and higher impairment was offset by lower total costs.
Nicholas Hyett at Hargreaves Lansdown said: “This set of results highlights the attractions of the business Antonio Horta-Osorio has built up, but also the bank’s inextricable relationship with the fortunes of the UK economy. A tougher economic environment and increasing competition has left Lloyds with lacklustre income growth in the second quarter, that’s been compounded by an, admittedly anticipated, increase in impairments. These aren’t exactly promising trends, and all hint at the underlying weakness of the UK economy.”
Shares closed down 1.75% at 53.33p.
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