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Lloyds earmarks up to £1.8bn more for PPI claims PPI claims: Lloyds and Barclays face billions of pounds in extra charges
(about 8 hours later)
Lloyds Banking Group will incur a further charge of up to £1.8bn to cover claims relating to mis-sold payment protection insurance after being hit by a surge in claims last month. Lloyds Banking Group and Barclays have warned they will take billions of pounds in extra charges to cover a last-minute surge in claims relating to mis-sold payment protection insurance (PPI).
Lloyds said the last-minute rush was bigger than expected, and has prompted it to make another PPI charge of between £1.2bn and £1.8bn. At the top end, this is double the £900m charge taken last week by Royal Bank of Scotland, which also saw a last-minute surge in claims. CYBG, which owns the Clydesdale and Yorkshire banks and Virgin Money, warned last week that it faced a potential bill of £450m for new claims. The lenders said they underestimated the number of complaints they would receive in the run-up to the 29 August deadline and will increase provisions following a spike in claims before the cut-off. Lloyds expects to take another PPI charge of between £1.2bn and £1.8bn in the third quarter, while Barclays expects to put aside between £1.2bn and £1.6bn.
The latest charge takes Lloyds’s total PPI bill to nearly £22bn – by far the largest of all the banks. In total, the five major high street banks have set aside more than £40bn to compensate people who purchased often worthless cover in what has become the UK’s largest mis-selling scandal. Those estimates are sharply higher than the £900m charge announced by Royal Bank of Scotland last week, after the bank said it was also hit by a last-minute rush in claims. CYBG, which owns the Clydesdale and Yorkshire banks and Virgin Money, warned that it faced a potential bill of £450m for new complaints.
Since Lloyds started taking claims in 2011, it has typically received 70,000 PPI information requests a week, but this soared to 600,000 to 800,000 a week in the final weeks before the 29 August deadline. In total, six of the largest high street banks have announced provisions worth almost £49bn, in order to compensate customers who purchased often worthless cover in what has become the UK’s largest mis-selling scandals.
Lloyds said the number was “higher than expected, with a significant spike in the final days before the deadline expired”. PPI has become the UK’s biggest mis-selling scandal and has forced banks to put aside billions of pounds to compensate customers.
In light of this, the bank has decided to suspend the remainder of its 2019 share buyback programme, leaving £600m of the £1.75bn programme unused. Lloyds expects capital growth, and its return on equity, to be below its previous guidance, with the final outcome dependent on the actual PPI charge taken. We have calculated the total PPI provisions that major UK banks have announced to date: 
The latest provision comes on top of £550m in PPI charges taken in the second quarter, which pushed down Lloyds’s pretax profits by 7% to £2.9bn for the six months to the end of June. Lloyds – £21.8bn
Barclays – £11.2bn
Royal Bank of Scotland – £6.2bn
HSBC – £4.4bn
Santander UK – £2bn
CYBG – £3.1bn 
Total PPI provisions announced by major high street banks – £48.7bn 
* NOTE: the tally includes upper-end estimates for third-quarter PPI provisions by Lloyds, Barclays, RBS and CYBG
Kalyeena Makortoff
Lloyds’ latest provision adds to the £550m in PPI charges taken in the second quarter, which pushed down the bank’s pre-tax profits by 7% to £2.9bn for the six months to the end of June. Once confirmed, it will bring Lloyds’ total PPI bill to almost £22bn – by far the largest of all the banks and larger than the near £15bn in combined annual profits reported by the bank since it first started taking claims in 2011.
The sum is almost double the second-largest bill, footed by Barclays, which could reach £11.2bn in the third quarter. Barclays warned that its final PPI bill “will depend on a number of factors, including the quality of recently submitted claims”.
Smaller lenders including the Co-operative Bank have also dealt with a late rush in PPI complaints. The lender, which put aside an extra £2.5m in recent months, said last week it received a “substantially greater volume” of claims but stopped short of estimating the resulting costs.
PPI provisions are meant to cover compensation and administrative costs. While most lenders have refused to disclose how many workers are processing claims, the Guardian understands that Lloyds has about 6,000 staff – most of whom are contractors – processing PPI claims on its behalf.
Lloyds announced on Monday that it was suspending the remainder of its 2019 share buyback programme, given uncertainty around the final costs of the PPI scandal, leaving £600m of the £1.75bn programme unused.
The buyback, launched in March, had been a sign of Lloyds’ confidence in the business, despite Brexit. Share buybacks are often an alternative to paying dividends to shareholders and can help consolidate ownership and boost stock value by cutting down the number of shares in circulation.
Lloyds said it was still committed to increasing its ordinary dividend. However, the lender expects capital growth and its return on equity to be below its previous guidance, saying the final outcome will depend on the final PPI bill.
Since it started taking claims in 2011, Lloyds has typically received 70,000 PPI information requests a week but this soared to 600,000 to 800,000 a week in the final weeks before the 29 August deadline.
Russ Mould, an investment director at the stockbroker AJ Bell, said: “The extra costs do knock the investment case for Lloyds as they hit return on equity, hamper the bank’s plans to build up its capital buffers and therefore its ability to distribute spare cash once regulators are satisfied that it has sufficient financial ammunition to withstand any future crisis.
“The good news is that this should at least see Lloyds through PPI and that no further hits can come from it.”
About 64m PPI policies were sold in the UK, mostly between 1990 and 2010. Banks and other financial institutions pushed the insurance alongside loans, credit cards and other deals – but in many cases, exclusions meant customers could never make a claim.About 64m PPI policies were sold in the UK, mostly between 1990 and 2010. Banks and other financial institutions pushed the insurance alongside loans, credit cards and other deals – but in many cases, exclusions meant customers could never make a claim.
Analysts at Goodbody said: “The focus now turns to Barclays, with evidence from its peer group suggesting that the £360m of PPI provisions remaining in the second quarter are inadequate to cover the significant spike in activity in the lead-up to the deadline.” Payment protection insurance
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