James Moore: PPI is still reining in the black horse

Outlook The numbers from Lloyds Banking Group might not have looked terribly clever yesterday, but there were reasons for the black horse to be feeling a little friskier than of late. The ratio of loans to deposits is improving quite rapidly. Lloyds has a fairly robust-looking capital base and it is managing to wean itself off wholesale funding from the Bank of England surprisingly quickly, although when the European Central Bank is throwing cheap money around like confetti it helps a great deal. It has even cheered one or two analysts up by beating their (much reduced) expectations.

The biggest fly in the ointment comes in the form of a certain pestilential and perfidious issue that just won't go away. Payment protection insurance (PPI) continues to impede the black horse's rehabilitation like a badly sprained fetlock.

Yesterday, the company announced it was putting yet another £375m aside to cover the cost of compensation claims from people mis-sold the stuff. This is a scandal whose cost seems to escalate at a similar rate to the national debt under Gordon Brown.

But no, according to chief executive Antonio Horta-Osorio, this latest provision amounts to no more than "a minor adjustment". Only a banker could characterise £375m thus.

He also railed against the claims management industry, arguing that lots of claims submitted by it are fraudulent. He might have a point there. Sleazy companies are currently bombarding the airwaves with sleazy ads offering a service which isn't necessary and serves only to cheat people out of the compensation they are owed to pay the fees.

All the same, this sleazy industry has only arisen because of what were some very sleazy practices by the banking industry in the first place.

Mr Horta-Osorio might like to reflect upon that. The PPI scandal is symptomatic of an industry that has for too long treated its customers as marks to be squeezed. Lloyds might have clawed back some of the bonuses from those in charge when the bank was selling its loan customers a worthless product, but that seems to be as much motivated by PR as it does any real contrition. Otherwise, why not another round of it to reflect the latest provision increase?

The issue will probably die off towards the latter part of the year when most of the claims ought to have been filed. And Lloyds will need the financial relief this provides, because it is in hock to the British economy in a way none of its rivals is and is suffering from more than a fetlock sprain right now.

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