Lloyds sets aside another £750m in compensation

A NEAR doubling of profits at Lloyds Banking Group was overshadowed by another hefty bill to compensate customers mis-sold loan insurance.

Antonio Horta-Osorio

Lloyds has set aside another £750m in compensation, which means it has now set aside more than £8bn to deal with the most expensive consumer finance scandal in UK history.

Lloyds, which is 33 per cent owned by the taxpayer, has had to pay out far more than any other bank.

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The group, which includes Halifax and Bank of Scotland, reported an underlying profit, not including the payment protection insurance (PPI) charge, of £1.5bn, up 83 per cent on last year, reflecting an improved interest margin and lower costs.

Lloyds has already spent £6.3m on the compensation programme. Of the £8bn total now set aside, £1.7bn is earmarked for administration costs.

UK banks have in total set aside over £17bn to compensate customers who were mis-sold PPI. The policies were meant to protect borrowers in the event of sickness or unemployment, but were often sold to people who were unable to claim.

The bank said the average rate of upheld complaints has been rising since the start of the year.

The overall volume of complaints has been falling, but more slowly than expected.

Weekly complaints were running at 11,000, down from 12,500 in the second quarter.

Shares in Lloyds closed down 2.02 per cent last night, a fall of 1.61p to 78.01p.

The shares have more than doubled in value over the past year, enabling Chancellor George Osborne to start offloading the shares the Government acquired in a £20.5bn bailout of the bank during the 2008 financial crisis.

The Government sold a six per cent stake in its tax-payer backed holding to institutional investors for £3.2bn last month.

Numis analyst Mike Trippitt said the bank had reported a strong underlying performance, offset by further PPI provisions and losses on asset sales.

He downgraded the stock to ‘hold’ from ‘add’, on valuation grounds.

Lloyds, Europe’s fourth-biggest bank, is currently in talks with regulators about re-starting dividend payments for the first time since 2008.

It will set out its dividend policy alongside its 2013 results next February.

Chief executive Antonio Horta-Osorio said: “The bank is back to profitability. We are back to being a normal company so therefore we have started in this quarter discussions with our regulator. We are going to be a high dividend paying stock in the future.”

Mr Horta-Osorio said he expects the Government will sell more shares next year.

“I think it is very likely that there will be a significant other tranche sold in 2014,” he said.

Richard Hunter, head of equities at Hargreaves Lansdown, said: “Lloyds has thrown the ball back into the court of the Government to ponder whether the time has come to dispose of its remaining stake and leave the company to its own devices.”

He said the resumption of dividend payments will add to the stock’s appeal amid low interest rates elsewhere.

But Mr Hunter added: “It is certainly not all plain sailing just yet – the further PPI provision is unwelcome and the costs associated with its branch disposal and non-core assets are financial distractions.”

Lloyds said it is very focused on Halifax as its challenger brand.

In the six weeks since the banking industry’s seven-day current account switching came into force, Halifax said it had seen “a very good performance” and it has attracted switchers from all the brands in the high street.

In August, Halifax launched Cashback Extras, a cashback programme designed to reward customers based on their existing shopping habits. It offers cashback of up to 15 per cent on purchases from retailers including Bradford-based Morrisons, Argos and Homebase.

Customers who use the programme will be able to earn over £100 in cashback over a year while buying goods they already spend money on.

Earlier this month, Halifax launched a new range of ‘Help-to-Buy’ mortgage products, which are backed by the Government allowing first-time buyers and home movers to get a mortgage with a five per cent deposit. It reported a “strong level”of interest since the launch,.

Halifax said its savings business performed well during the third quarter to September 30. It recently celebrated the second anniversary of its Savers Prize Draw, which now has over 1.7m customers.

A January ‘Super Draw’ will pay out a total prize pot of £1m. So far it has paid out over £14m in more than 24,000 prizes.

Halifax’s growth helped Lloyds to move back into the black earlier this year with half-year profits of £2.1bn.

Since then Lloyds has spun off more than 600 branches under the revived TSB brand, which it hopes to float next year.