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Lloyds Banking Group reports loss on £3bn PPI provision | |
(40 minutes later) | |
Lloyds Banking Group has announced a £3.2bn provision for mis-selling claims by customers who took out payment protection insurance (PPI). | |
Lloyds has decided to settle claims after UK banks lost a judicial review over PPI compensation last month. | |
The move may put pressure on other banks to do the same. | |
The PPI provision meant Lloyds >made a loss of £3.47bn in the first three months of the year. It made a £721m profit a year ago. | |
Its PPI provision was much bigger than analysts had expected and shares in the bank fell 8%. | |
Industry hit | Industry hit |
PPI policies are supposed to repay a person's loan if their income drops because they fall ill or lose their job. But thousands of people have received compensation because their policies were mis-sold. | PPI policies are supposed to repay a person's loan if their income drops because they fall ill or lose their job. But thousands of people have received compensation because their policies were mis-sold. |
The Financial Services Authority (FSA) published guidelines last year which said banks should contact all past PPI customers and invite them to complain if they thought they had been mis-sold PPI. | The Financial Services Authority (FSA) published guidelines last year which said banks should contact all past PPI customers and invite them to complain if they thought they had been mis-sold PPI. |
UK banks challenged those guidelines, arguing that the rules were unfair because they were retrospective. | UK banks challenged those guidelines, arguing that the rules were unfair because they were retrospective. |
But last month a High Court judge rejected their challenge, meaning that banks could face huge compensation bills. | But last month a High Court judge rejected their challenge, meaning that banks could face huge compensation bills. |
The BBC's business editor Robert Peston said Lloyds' decision to settle with PPI claimants was a unilateral one, but could lead to other banks following suit. | The BBC's business editor Robert Peston said Lloyds' decision to settle with PPI claimants was a unilateral one, but could lead to other banks following suit. |
"The size of Lloyds' charge implies that the big British banks will in total take a £9bn hit to settle PPI claims," he said. | "The size of Lloyds' charge implies that the big British banks will in total take a £9bn hit to settle PPI claims," he said. |
Customer claims | Customer claims |
Lloyds' decision on PPI could hardly be more dramatic, or more expensive for the bank. | Lloyds' decision on PPI could hardly be more dramatic, or more expensive for the bank. |
It has thrown in the towel after years in which the banking industry has denied there was much of a problem. | It has thrown in the towel after years in which the banking industry has denied there was much of a problem. |
Banks have fobbed off hundreds of thousands of complaining customers. | Banks have fobbed off hundreds of thousands of complaining customers. |
Of course, not all PPI policies were mis-sold and some have paid out. | Of course, not all PPI policies were mis-sold and some have paid out. |
But millions were sold, by credit card and hire purchase providers as well as banks. | But millions were sold, by credit card and hire purchase providers as well as banks. |
The FSA's initial estimate of an industry-wide bill for mis-selling of a bit over £3bn is now looking like a wild underestimate. | The FSA's initial estimate of an industry-wide bill for mis-selling of a bit over £3bn is now looking like a wild underestimate. |
The chances must be that the rest of the banks will finally do as they have been told by the regulators. | The chances must be that the rest of the banks will finally do as they have been told by the regulators. |
Lloyds has thousands of PPI complaints stacked up. | Lloyds has thousands of PPI complaints stacked up. |
These will now be processed, the bank says, after having been put on hold while the recent High Court case reached its conclusion. | These will now be processed, the bank says, after having been put on hold while the recent High Court case reached its conclusion. |
All other customers of Lloyds, including those of the former HBOS bank, are now being invited to contact the bank if they think they have a claim. | All other customers of Lloyds, including those of the former HBOS bank, are now being invited to contact the bank if they think they have a claim. |
At this stage it is not clear if the bank will send letters to all past PPI customers, of whom there could be several million. | At this stage it is not clear if the bank will send letters to all past PPI customers, of whom there could be several million. |
Nor is it revealing exactly how it has quantified the eventual cost as being £3.2bn. | Nor is it revealing exactly how it has quantified the eventual cost as being £3.2bn. |
Core growth | |
Lloyds, which is 41%-owned by the government, also took a charge of £1.1bn to allow for further falls in commercial property prices in the Irish Republic. | |
However, the bank's core business showed growth as customer loans and deposits rose from £842bn to £847.8bn. | |
"The bank as a whole appears to be getting better and appears to be taking a larger market share," said Ralph Silva, banking analyst at SRN. | |
Before the provision for PPI compensation and other one-off items, the bank said it had made a profit in the quarter of £284m. | |
The results were the first presented by new Lloyds chief Antonio Horta-Osorio, who replaced Eric Daniels on 1 March. | |
'Embarrassment' | 'Embarrassment' |
In February, Lloyds announced that it had returned to profit in 2010. | In February, Lloyds announced that it had returned to profit in 2010. |
It made a profit of £2.21bn, having reported losses of more than £6bn in both 2008 and 2009. | It made a profit of £2.21bn, having reported losses of more than £6bn in both 2008 and 2009. |
Robert Peston said the loss in the first quarter of 2011 would be an "embarrassment" for Lloyds, given that it trumpeted its return to profit last year. | Robert Peston said the loss in the first quarter of 2011 would be an "embarrassment" for Lloyds, given that it trumpeted its return to profit last year. |
But he said it was not embarrassing for Mr Horta-Osorio, who was not responsible for previous decisions and was now facing up to mistakes of the past. | But he said it was not embarrassing for Mr Horta-Osorio, who was not responsible for previous decisions and was now facing up to mistakes of the past. |
The new chief has already announced management changes as part of a shake-up at the bank. | The new chief has already announced management changes as part of a shake-up at the bank. |
In June, he will reveal more details about his long-term strategy for Lloyds. | In June, he will reveal more details about his long-term strategy for Lloyds. |
Were you mis-sold PPI? Are you a Lloyds customer? Send us your comments. | Were you mis-sold PPI? Are you a Lloyds customer? Send us your comments. |