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Lloyds back in red after £8bn PPI bill

Group records pre-tax losses of £440m in the third quarter of the year, compared with a £151m loss in the same period last year

Lloyds Banking Group's bill for compensating customers who were mis-sold payment protection insurance (PPI) has risen to more than £8 billion, helping the state-backed lender slide back into the red.

The business, which is 33 per cent owned by the taxpayer, increased PPI provisions by £750 million as it notched up statutory pre-tax losses of £440 million for the third quarter.

It shows how the impact of the scandal, which has affected a number of banks, continues to grow more than two years after Lloyds announced it was setting aside £3.2 billion to deal with claims.

The latest charge, together with other costs from the legacy of its troubled past, masked an improved day-to-day performance as underlying profits nearly doubled to £1.52 billion - adding to pressure on the Government to dispose of its remaining stake.

A 6 per cent chunk was sold to institutional investors for £3.2 billion last month.

Lloyds also said it was in talks with regulators about re-starting dividend payments for the first time since 2008.

Following its rescue by the taxpayer after swallowing up troubled Halifax Bank of Scotland during the financial crisis, the group's drive to return to profit has been increasingly hampered by the costs of PPI.

Lloyds has already spent £6.3 billion on the compensation programme. Of the £8 billion in total now set aside, £1.7 billion is earmarked for administration costs alone.

In the third quarter, a higher-than-expected £706 million was spent, including £161 million for administration. The average rate of upheld complaints has been rising since the start of the year, the bank said.

The overall volume of complaints has been falling, but more slowly than expected. Weekly complaints were running at 11,000, down from 12,500 in the second quarter.

Lloyds had swung out of the red earlier this year with half-year profits of £2.1 billion.

Since then it has spun off more than 600 branches under the revived TSB brand, which it hopes to float next year. But the costs of the move were among the hits to the balance sheet in the latest results.

The bottom line was further weighed down by losses from the group's continued disposal of non-core assets that it does not see as part of its more streamlined future.

During the period it disposed of a German life insurance business as well as operations in Australia.

Shares dipped nearly 4 per cent on the results but later recouped some of the losses and they remained above the 73.6p on average paid for the stock by the Government.

Chief executive Antonio Horta-Osorio stands to qualify for a shares bonus worth around £2.3 million on paper should the price remain above that level until November 20 - though he will not be able to cash in on them until 2018.

Mr Horta-Osorio said: "We are well on our way to becoming a better, simpler, low-risk bank, which delivers the products our customers need and the strong performance and sustainable returns our shareholders expect."

Richard Hunter, head of equities at Hargreaves Lansdown, said: "Lloyds has thrown the ball back into the court of the Government to ponder whether the time has come to dispose of its remaining stake and leave the company to its own devices."

He said the resumption of dividend payments would add to the attractiveness of the stock for many investors amid low interest rates elsewhere.

But Mr Hunter added: "It is certainly not all plain sailing just yet - the further PPI provision is unwelcome, the costs associated with its branch disposal and non-core assets are financial distractions, whilst competition within the sector is growing at a time when Lloyds is looking to prepare itself for the next chapter."

The latest results are the first in a raft of bank earnings reports due out this week including Royal Bank of Scotland and Barclays.

Elsewhere, Deutsche Bank saw quarterly net profits dwindle to 51 million euro (£44 million) as it set aside 1.2 billion euro (£1 billion) for losses from legal action mainly related to US residential mortgage-backed investments.

Meanwhile Swiss banking giant UBS saw profits of 577 million Swiss francs (£400 million) after losses in the same period last year but warned that profit goals for 2015 would probably not be achieved.