Lloyds Banking Group said yesterday that one in four of the payment protection insurance (PPI) claims made against it were fraudulent.
A quarter of the claims "are on behalf of customers who do not even have a PPI policy with us", its chief executive Antonio Horta-Osorio said as he revealed that the bank had set aside a further £375m to deal with the mis-selling scandal. That takes the total for Lloyds above £3.5bn.
A decision on whether to claw back further bonuses from former directors, including the former chief executive Eric Daniels, will be taken at the end of this year. In a swipe at the previous regime, Mr Horta-Osorio said: "This is, in relative terms, a small adjustment to our provisions.
"But our share of provisions for PPI is bigger than our share of the retail market. What happened was unacceptable. Lloyds and HBOS sold this product for too long and with too much intensity. That is why I stopped it as soon as I became chief executive."
Mr Horta-Osorio said that, along with other banks, Lloyds had seen a sharp rise in PPI claims in February and March as claims companies ramped up their advertising campaigns, but something of a tail-off in April as the Ministry of Justice, consumer groups and the banks started to warn people against using the claim firms.
He added: "Customers did not realise that they could end up paying up to a third of their compensation to these companies when we have made it easy for them to go on our website themselves to make a claim."
The extra PPI provision meant Lloyds' first-quarter pre-tax profit slipped to £288m from £316m in the same period last year. But Mr Horta-Osorio said the quarter had seen significant progress in strengthening the balance sheet, reshaping the business and reducing risk.
He said he still expected to sell 632 branches under Project Verde before the EU-imposed deadline of November 2013.
"We still have three options," he said. "Co-op remains the preferred bidder; we continue planning for an initial public offering and NBNK [Lord Levene's vehicle] is answering the questions we have asked it. We need to be reassured it can clear regulatory hurdles, provides value for shareholders and is superior to an IPO."
Lloyds shares rose 2.6p to 33.6p yesterday, meaning they about half the average 63.1p paid by the taxpayer in the £17bn bailout.
Richard Hunter, the head of equities at Hargreaves Lansdown, said: "The likelihood of reaching the break-even point seems a long way off, even if Lloyds is making slow and steady progress, whilst the absence of a dividend isanother drag on enticing potential buyers."