Lloyds takes £1.6bn hit over PPI mis-selling and treatment of mortgage customers
Lloyds Banking Group has taken a £1.6 billion hit to cover ballooning compensation costs linked to the mis-selling of payment protection insurance (PPI) and to resolve its mistreatment of mortgage customers.
Its PPI costs for the six months to June 30 swelled to £1.05 billion, having earmarked £350 million for claims in the first quarter, and provisioned for another £700 million in the second quarter.
The bank said it will help cover a jump in PPI claims from around 7,700 per week to 9,000 through to the claim deadline set for the end of August 2019, but brings its total bill for PPI misselling to over £18 billion.
Lloyds has now increased its provisions pot approximately 17 times.
Chief financial officer George Culmer said it was "disappointing to be having to do it again" but did not take a further rise off the table.
"It will depend upon where those future volumes (of complaints) go," he said.
The bank has also agreed to compensate approximately 590,000 mistreated mortgage customers, some of which were mistakenly charged unaffordable fees after falling behind on payments between 2009 and 2016.
The Financial Conduct Authority said Lloyds expects to shell out £283 million as part of the redress scheme, prompting the bank to set aside a further £155 million in the half year to June 30.
Arrears repayment costs were bundled into a £540 million provision meant to cover additional conduct issues including alleged mis-selling of packaged bank accounts.
The provisions were detailed in its half-year earnings, which showed a 4% rise in statutory pre-tax profits to £2.54 billion, while total income rose 4% to £9.27 billion in the six months to June 30.
It was the first set of results to be released by the bank since it was returned to private hands earlier this year.
Adding to its troubles, Lloyds - which rescued HBOS at the height of the financial crisis - is still in the process of paying victims of fraud at the hands of HBOS Reading staff between 2003 and 2007, having set aside £100 million in the first quarter to deal with those compensation costs.
The corrupt financiers were jailed earlier this year for the £245 million loans scam which destroyed several businesses, before they squandered the profits on high-end prostitutes and luxury holidays.
Lloyds is also set to fork out a further £200 million to cover the rising costs of setting up its ring-fenced retail bank, meant to meet new UK rules designed to shield households and firms in the event of another banking crisis.
Its ring-fenced operations are still set to open in 2019, Lloyds said.
Lloyds Banking Group shares were down 1.7% in morning trading.
Hargreaves Lansdown senior analyst Laith Khalaf, said: "Overall this is a strong set of numbers from Lloyds, blighted, but not overshadowed, by misconduct costs."
He added: "The bank's fortunes are heavily reliant on the UK economy, which still hangs in the balance as we leave the European Union, though even if we are entering a period of economic weakness, Lloyds is at least doing so from a position of strength."