Money

LLoyds profits tumble thanks to latest £2.5bn bill for PPI



Lloyds Banking Group has warned of a hit to 2020 results amid tough competition in the mortgage market as it revealed that a mammoth payment protection insurance bill sent annual profits tumbling.

The lending giant lowered two key targets of profitability for 2020 as its retail margins come under pressure amid low interest rates and intense price competition that is affecting players across the sector.

Its annual results showed that pre-tax profits slumped by 26 per cent to £4.4bn for 2019 after it was hit by a £2.5bn bill for the payment protection insurance (PPI) scandal.


Its annual report, published alongside the results, revealed that chief executive Antonio Horta-Osorio’s pay fell by 28 per cent to £4.7m for 2019 as a result of the steep drop in profits, while the wider staff bonus pool was cut by 33 per cent to £310.1m.

The group also outlined plans to reduce Mr Horta-Osorio’s maximum total payout – including controversial pension payments – by 29 per cent for 2020 and beyond as part of an executive remuneration overhaul.

Mr Horta-Osorio – who has faced criticism over his pay in the past year – will see his pension drop to 15 per cent of basic salary, down sharply from 33 per cent, as part of efforts to narrow the gap between executive pay and the wider workforce.

The lower pension payment represents a cut of almost £230,000.

Mr Horta-Osorio insisted the results for 2019 were “resilient”, with underlying profits down by 7 per cent to £7.5bn.

He said: “In 2019 the group has continued to make significant strategic progress while delivering solid financial results in a challenging external market.”

He added: “Throughout 2019, UK economic performance has remained resilient in the face of significant political and economic uncertainty, supported by record employment, low interest rates and rising real wages.

“Although uncertainty remains given the ongoing negotiation of international trade agreements, there is now a clearer sense of direction and some signs of an improving outlook.”

But the group flagged that it expects to report a return on tangible equity of between 12 per cent and 13 per cent in 2020, against previous targets of 14 per cent to 15 per cent.

Its net interest margin – another measure of profitability – is also set to drop this year as challenging retail banking conditions take their toll.

Shares rose 3 per cent despite the lowered targets as Lloyds delivered some cheer for investors with a 5 per cent rise in the dividend payout.

The group said it did not set aside any further PPI charges in the final three months of 2019 after a mammoth £1.8 billion bill in the third quarter amid a rush of claims ahead of the August deadline.

It said it took “some comfort” from this that its current provisions will be enough, allowing it to draw a line under the costly saga.

Mr Horta-Osorio gave assurances that he was “absolutely committed” to seeing through the current three-year strategy for the bank despite speculation swirling that the bank has been stepping up its chief executive succession planning.



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