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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
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.
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This [PPI provision] will be welcomed by thousands of Lloyds customers, although it will be very expensive for Lloyds ”
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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.
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.
Customer claims
Analysis
Ian Pollock Personal finance reporter, BBC News
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.
Banks have fobbed off hundreds of thousands of complaining customers.
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.
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.
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.
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.
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’
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.
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.
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.
Continued here:
PPI claims could cost Lloyds £3bn