Investors rocked as Lloyds raises PPI provisions to £10bn


Lloyds Banking Group shocked investors with yet another round of extra provisions for mis-selling payment-protection insurance (PPI), taking the total bill to a devastating £10bn, without any concrete guarantee that no more will follow.

However, the bad news about the further £1.8bn going into its PPI mis-selling pot was countered with news that Lloyds would start paying a dividend for 2014, making it what chief executive Antonio Horta-Osorio called a “normal bank” again.

That in turn paves the way for a major privatisation of the taxpayer’s stake in the business as soon as March.

If economic conditions suit, the Treasury hopes to launch one big sale of shares to the public in the spring, followed by another in the autumn, possibly raising twice as much as the £3.2bn sale to institutional investors carried out last September.

The taxpayer still owns  23.3 billion shares in Lloyds, equivalent to £18.9bn at last night’s closing price, which was down 3.4 per cent on the day at 79.99p.

Analysts said it was disappointing a dividend would not be payable for 2013, adding that guidance on the anticipated size of the divi for 2014 was disappointingly low – it was to be “modest”, the company said.

We are seeing the makings of a welcome return to privately owned banks. Prosperity, however, is another matter  

However, sources in the bank claimed it had never led investors to expect a dividend for the 2013 financial year. Some observers pointed out it would have caused a furore if Lloyds had signalled a bumper dividend payout at the same time as hiking up the magnitude of the PPI fiasco.

Mr Horta-Osorio said: “It was very important to be considered a normal bank by 2014 and be able to pay a dividend for 2014.”

Asked if the latest PPI cost would be final, finance director George Culmer said: “I don’t expect any more on top of this but you can never be absolutely certain.”

An analysis of the numbers shows complaints are starting to slow, currently 25 per cent down on the quarter, but the administration cost is constantly rising as 7,000 workers plough through the claims.

OUTLOOK: Failed HBOS merger is a cautionary tale for Lloyds privatisation  

Of the £10bn provision, £1bn is for the administration of claims. Also, a little over £2.3bn of the provision has not yet been spent, giving some cause for optimism that the total number will not need to rise again.

Lloyds received a £20bn taxpayer bailout in 2009 following its disastrous takeover of HBOS in 2008 at an average 63.1p a share. The Treasury’s sale to institutions in September was priced at 75p a share.

Mr Horta-Osorio stressed it was up to the Government and UK Financial Invesments (which holds the government’s shares) to determine the timing of the share sale.

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