Lloyds provision for mis-selling of PPI drives shares down 8 per cent

Lloyds Banking Group stunned the City yesterday by revealing a first-quarter loss of almost £3.5bn as its new chief executive cleared the decks early in his reign.

Britain's biggest retail bank unveiled a shock £3.2bn charge for mis-selling payment protection insurance (PPI) and took a £1.1bn hit in Ireland. António Horta-Osório, who joined Lloyds in March, denied he was getting as much bad news as possible out at the start of his tenure.

"I really do not see any kitchen sinking in these results. I see us addressing significant problems that exist. These problems have to be closed," he said.

The provisions for PPI and Ireland meant the taxpayer-controlled bank swung to a loss of £3.47bn from a £721m profit a year before.

Investors were also unnerved by the bank's higher funding costs and shrinking margins.

Ian Gordon, a banking analyst at Exane BNP Paribas, said: "Recent stock weakness has undoubtedly reflected some anticipation of 'kitchen-sinking', but it may still be premature to assume that this process is over. We remain more concerned about the very weak underlying profitability."

The huge provisions reflected continuing pain from the emergency takeover of HBOS but also Lloyds' practices as the biggest seller of PPI .

The loss calls into question the bank's actions under its previous chief executive, Eric Daniels, who last year hailed a return to profit after its massive losses from the HBOS acquisition.

Mr Daniels was awarded a £1.45m bonus for last year and has now left the bank. The all-share award vests in 2013 and he will decide then whether to accept the payout.

Lloyds shares fell 8 per cent to 53p – taking them well adrift of the 63p price at which the Government bought its 43 per cent stake.

Group bad debts for the first quarter came in £500m higher than expected at £2.6bn because the bank decided to write off more of its loans in Ireland. The losses were caused by HBOS's disastrous expansion in the Republic where it followed Ireland's other banks into the commercial property boom.

The bank's long-term profitability also took a severe hit as its net interest margin shrank sharply to 2.07 per cent from 2.12 per cent in the previous quarter. The bank said the narrowing was caused by replacing Government funding support with more expensive debt sold to private investors and greater reliance on retail deposits.

Lloyds' comment that these conditions would last the rest of the year prompted investors to question whether the bank was in fundamentally worse shape than had been believed.

Jane Coffey, a fund manager at Royal London Asset Management, who does not hold Lloyds shares, said: "Their comment is that the headwind on margins is going to continue. That is the fundamental question over the longer-term earnings profile: what is the natural margin they can get?"

The PPI provision took analysts by surprise because the total industry bill was thought to be about £4.5bn. Lloyds has about a third of the market, suggesting the total cost of paying back customers could be about £9bn.

Lloyds and the other big banks last month lost a High Court case against the Financial Services Authority over its demand that they should compensate millions of customers who may have been improperly sold policies. Mr Horta-Osorio said Lloyds would not take part in a potential appeal against the ruling, which the British Bankers' Association will decide on by next Tuesday.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

Where the spooks get their coffee fix: The busiest Starbucks in the US is also the most secretive

The secret CIA Starbucks

The coffee shop is deep inside the agency's forested Virginia compound
Revealed: How the Establishment closed ranks over fallout from Loch Ness Monster 'sighting'

How the Establishment closed ranks over fallout from Nessie 'sighting'

The Natural History Museum's chief scientist was dismissed for declaring he had found the monster
One million Britons using food banks, according to Trussell Trust

One million Britons using food banks

Huge surge in number of families dependent on emergency food aid
Excavation at Italian cafe to fix rising damp unearths 2,500 years of history in 3,000 amazing objects

2,500 years of history in 3,000 amazing objects

Excavation at Italian cafe to fix rising damp unearths trove
The Hubble Space Telescope's amazing journey, 25 years on

The Hubble Space Telescope's amazing journey 25 years on

The space telescope was seen as a costly flop on its first release
Did Conservative peer Lord Ashcroft quit the House of Lords to become a non-dom?

Did Lord Ashcroft quit the House of Lords to become a non-dom?

A document seen by The Independent shows that a week after he resigned from the Lords he sold 350,000 shares in an American company - netting him $11.2m
Apple's ethnic emojis are being used to make racist comments on social media

Ethnic emojis used in racist comments

They were intended to promote harmony, but have achieved the opposite
Sir Kenneth Branagh interview: 'My bones are in the theatre'

Sir Kenneth Branagh: 'My bones are in the theatre'

The actor-turned-director’s new company will stage five plays from October – including works by Shakespeare and John Osborne
The sloth is now the face (and furry body) of three big advertising campaigns

The sloth is the face of three ad campaigns

Priya Elan discovers why slow and sleepy wins the race for brands in need of a new image
How to run a restaurant: As two newbies discovered, there's more to it than good food

How to run a restaurant

As two newbies discovered, there's more to it than good food
Record Store Day: Remembering an era when buying and selling discs were labours of love

Record Store Day: The vinyl countdown

For Lois Pryce, working in a record shop was a dream job - until the bean counters ruined it
Usher, Mary J Blige and Will.i.am to give free concert as part of the Global Poverty Project

Mary J Blige and Will.i.am to give free concert

The concert in Washington is part of the Global Citizen project, which aims to encourage young people to donate to charity
10 best tote bags

Accessorise with a stylish shopper this spring: 10 best tote bags

We find carriers with room for all your essentials (and a bit more)
Paul Scholes column: I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England

Paul Scholes column

I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England
Jessica Ennis-Hill: 'I just want to give it my best shot'

Jessica Ennis-Hill: 'I just want to give it my best shot'

The heptathlete has gone from the toast of the nation to being a sleep-deprived mum - but she’s ready to compete again. She just doesn't know how well she'll do...