Lloyds Banking Group has suspended its share buyback programme after becoming the latest lender to take a new charge tied to a mis-selling payment protection insurance scandal that has cost the British banking sector more than £50bn.
The bank warned it would have to set aside between £1.2bn and £1.8bn after receiving a surge of last-minute compensation demands from customers ahead of a deadline late last month.
The latest charge, following similar warnings from Royal Bank of Scotland, CYBG and the Co-operative Bank last week, means that Lloyds has set aside up to £21.9bn over the mis-selling of loans and credit card insurance that began two decades ago.
The charge would equate to roughly a quarter of the group’s forecast pre-tax profits for 2019, according to a FactSet consensus of analyst estimates. As a result, Lloyds said its statutory return on equity would be below its 12 per cent forecast. An earlier PPI charge at its second-quarter results in July had already caused it to cut its target once this year.
Lloyds chief executive António Horta-Osório has also cancelled the rest of the bank’s £1.75bn share buyback programme, with about £600m of planned purchases uncompleted. Shares in the bank, which have fallen 5 per cent this year, dropped 2 per cent in morning trading on Monday.
The warning from Lloyds was widely predicted after several rivals lifted their provisions last week. Analysts have also forecast that Barclays will also have to make extra provisions.
However, Lloyds maintained its commitment to increase its ordinary dividend, noting: “In line with normal practice, the board will give consideration to the distribution of surplus capital at the year end and continues to target a progressive and sustainable ordinary dividend.”
Lloyds said that it received between 600,000 and 800,000 inquiries a week throughout August, as well as an increase in direct complaints. Like its peers, Lloyds said that it was confident that only a small proportion of the inquiries — which were mainly driven by professional claims management companies — would be converted into formal complaints that led to compensation, but processing the millions of requests would still drive up its costs.
It cautioned, however, that the final PPI provision “could be above or below the range provided” depending on the final conversion rate.
PPI was a type of insurance attached to loans and credit cards that was designed to help borrowers keep servicing their debts if they fell ill or lost their jobs. However, in the late 1990s and early 2000s banks began pushing the highly profitable product on to as many customers as possible, even those not eligible for payouts or did not know they were buying it.
