Lloyds posts third quarter loss on loan insurance redress
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.