Lloyds Banking Group

Lloyds haunted by loans insurance problems

PUBLISHED : Friday, 02 November, 2012, 12:00am
UPDATED : Friday, 02 November, 2012, 5:30am

Lloyds Banking Group, Britain's biggest mortgage lender, posted a third-quarter loss after setting aside an extra £1 billion (HK$12.4 billion) to compensate clients mis-sold loan insurance.

The net loss narrowed to £361 million from £501 million in the year-earlier period, London-based Lloyds said yesterday. Analysts had predicted a £4 million profit, according to the median estimate in a survey.

"We have made further significant progress this quarter, improving underlying performance in a challenging environment," chief executive Antonio Horta-Osorio, said. "Disappointingly, legacy issues continue to affect our results."

Lloyds had already allowed £4.3 billion, more than any other bank, to compensate clients who were forced to buy, or didn't know they had bought, insurance to cover their repayments on mortgages, credit and other loans. Barclays, Britain's second-biggest bank, said last month it would take an additional £700 million charge for payment protection insurance.

British banks have now set aside more than £10 billion to settle claims after regulators ordered them to compensate customers who bought payment protection insurance.

Barclays has provisioned £2 billion for insurance redress, Royal Bank of Scotland has earmarked £1.3 billion, HSBC £1.1 billion and Santander UK about £731 million.

RBS may need to post an extra £300 million when it reports third-quarter earnings, according to Gary Greenwood, a banking analyst at Shore Capital in Liverpool. Greenwood had estimated that Lloyds would need an extra £2.3 billion.

Claims-management companies, which help customers pursue compensation for a fee or percentage of any courts award, have inflated the cost of claims and more than half of the claims from some firms were bogus, Horta-Osorio said in July.

Lloyds shares have rebounded 57 per cent to 40.58 pence in London trading this year, making it the best performer in the six-member FTSE 350 Banks Index. The British Treasury, which owns about 40 per cent of the bank after bailing it out in 2008, paid about 73.6 pence a share for its stake.