Lloyds warns of banking 'crisis' after further PPI hit

Lloyds Banking Group set aside another £700m to deal with compensation claims for mis-selling insurance products yesterday, while the chief executive admitted the industry is in deep crisis.

The banking giant that owns HBOS, the merged Halifax and Bank of Scotland business that collapsed in the financial crisis and was rescued by Lloyds, fell to a half-year loss of £439m and predicted further trouble.

It also revealed it has received subpoenas from governments as part of an investigation into a global interest-rate rigging scandal.

"Certain parts of the group have received subpoenas and requests for information from certain government agencies and are co-operating with their investigations," the bank said. Lloyds said it could not yet say what its exposure to the Libor inquiries could be.

The extra £700m for mis-selling of payment protection insurance comes on top of the £3.2bn it first set aside to deal with the problem and the £375m provision it made in the first half of the year. That takes its total exposure, so far, to £4.275bn. Other banks are expected to make similar moves in the coming days.

Millions of loans were sold with PPI attached, which was supposed to cover repayments in the event of illness or unemployment. Many people were not told, or did not realise, that they had bought the product.

Chief Antonio Horta-Osorio was candid about the problems facing the company and the sector. He said banking is "clearly facing a deep crisis of confidence and trust".

Horta-Osorio, who took time off last year for stress-related illness, said the entire culture of the bank and the sector needs an overhaul.

He said banking is not efficient and has a history of selling bad products to its customers.

This must change, he said. There were some signs of optimism from the bank. Underlying profit rose by £715m to £1.1bn, a bit better than City forecasts.

The bank received a taxpayer bail-out worth £20bn, giving the taxpayer a 41 per cent stake in the company.

The Government bought its 41 per cent stake in Lloyds at 63p a share. The closing price of 29p yesterday means the taxpayer is sitting on a whopping loss of more than £10bn.