Lloyds posts third quar­ter loss on loan in­sur­ance re­dress

The Pak Banker - - Front Page -

LON­DON

Lloyds Bank­ing Group Plc, Bri­tain’s big­gest mort­gage lender, set aside an ad­di­tional 1 bil­lion pounds ($1.6 bil­lion) to com­pen­sate clients wrongly sold loan in­sur­ance as it posted a nar­rower third-quar­ter loss.

The net loss shrank to 361 mil­lion pounds from 501 mil­lion pounds in the year-ear­lier pe­riod, Lloyds said in a state­ment to­day. The pro­vi­sion brings the to­tal Lloyds has ear­marked for re­dress to 5.3 bil­lion pounds, more than any other U.K. bank.

British lenders have put aside more than 10 bil­lion pounds af­ter reg­u­la­tors or­dered them to com­pen­sate cus­tomers who were forced to buy, or didn’t know they had bought in­sur­ance to cover their re­pay­ments on mort­gages, credit cards and other loans. Bar­clays Plc (BARC), Bri­tain’s sec­ond­biggest bank, said on Oct. 18 it would take an ad­di­tional 700 mil­lion-pound charge for pay­ment pro­tec­tion in­sur­ance.

“The ad­di­tional PPI pro­vi­sion is not a big sur­prise fol­low­ing the re­cent in­crease by Bar­clays,” said Gary Greenwood, a banks an­a­lyst at Shore Cap­i­tal Ltd. in Liver­pool, Eng­land. “Im­por­tantly it is lower than the 2.3 bil­lion pounds that could have been im­plied as be­ing re­quired through a di­rect read across” from Bar­clays.

The amount Lloyds pays out monthly to set­tle PPI claims fell to 250 mil­lion pounds a month in the third quar­ter from 300 mil­lion pounds in the sec­ond half, fi­nance di­rec­tor Ge­orge Cul­mer told re­porters on a call to­day.

“We would ex­pect that trend to continue,” Cul­mer said. Whether fur­ther pro­vi­sions are needed “re­mains un­cer­tain,” he added. The stock rose as much as 8.4 per­cent and was 2.5 per­cent higher at 41.58 pence as of 8:42 a.m. in Lon­don trad­ing to­day. The shares have re­bounded 61 per­cent in Lon­don trad­ing this year, mak­ing Lloyds the best per­former in the six-mem­ber FTSE 350 Banks In­dex. The Trea­sury, which owns about 40 per­cent of the bank af­ter bail­ing it out in 2008, paid about 73.6 pence a share for its stake.

Lloyds’s loss nar­rowed as im­pair­ments for sour­ing mort­gages shrank in the third quar­ter, helped by slow­ing losses at its Ir­ish unit. Charges for sour­ing loans fell 35 per­cent to 1.26 bil­lion pounds. The bank said im­pair­ments would drop to 6 bil­lion pounds this year from a pre­vi­ous es­ti­mate of about 7.2 bil­lion pounds. Lloyds have been hurt as it set aside more than 10 bil­lion pounds to cover losses on real es­tate loans in the repub­lic, where com­mer­cial real es­tate prices slumped more than 65 per­cent and house prices al­most halved since 2007. That helped to in­crease pre­tax profit to 840 mil­lion pounds in the third quar­ter com­pared with 419 mil­lion pounds in the year-ear­lier pe­riod. That beat the 554 mil­lion pound me­dia es­ti­mate of 14 an­a­lysts sur­vey. “We have made fur­ther sig­nif­i­cant progress this quar­ter, im­prov­ing un­der­ly­ing per­for­mance in a chal­leng­ing en­vi­ron­ment,” Chief Ex­ec­u­tive Of­fi­cer An­to­nio Horta-Oso­rio, 48, said in the state­ment. “Dis­ap­point­ingly, legacy is­sues continue to af­fect our re­sults.”

Lloyds’s profit mar­gins are un­der pres­sure as the Bank of Eng­land holds its bench­mark in­ter­est rate at a record low amid an anaemic eco­nomic growth. The net in­ter­est mar­gin, the dif­fer­ence be­tween what Lloyds earns on loans and its cost of fund­ing, nar­rowed to 1.93 per­cent in the third quar­ter, from 2.05 per­cent.

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