Lloyds Banking Reveals Extra 1 Billion Pound PPI Charge

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LONDON -- Shares of Lloyds Banking (LSE: LLOY.L  ) (NYSE: LYG  ) gained 1.2 pence to 41.8 pence during early London trade this morning after the bank disclosed its bill for mis-selling payment protection insurance (PPI) had increased by a further 1 billion pounds.

The additional charge blighted the FTSE 100 (UKX) member's third-quarter figures, which showed a total loss of 361 million pounds for July, August, and September. Today's charge takes Lloyds' total PPI bill above 5 billion pounds, with 3.2 billion pounds set aside during 2011 and a further 2 billion pounds now set aside this year.

Excluding PPI costs, one-off items and restructuring expenditure, Lloyds claimed its underlying Q3 profits doubled to 840 million pounds, and nine-month profits surged 148% to 1.9 billion pounds.

The bank also provided reassuring guidance this morning. It revealed this year's impairment charge could be lower than originally expected at 6 billion pounds, and this year's "non-core asset reduction target" could be higher than initially thought at 38 billion pounds. Furthermore, the group's cost base is running at close to 10 billion pounds, two years ahead of plan.

Antonio Horta-Osorio, the chief executive of Lloyds, said today:

"We have made further significant progress this quarter, improving underlying performance in a challenging environment, while continuing to deliver returns above the cost of equity in the core business and strengthen our already robust balance sheet."

"We remain confident that, by delivering our strategy to be a simple, customer-focused UK retail and commercial bank, we can rebuild the trust of our customers and other stakeholders and can deliver sustainable returns for our shareholders over time."

Prior to today, City experts reckoned Lloyds' adjusted earnings for 2012 would be 2.2 pence per share -- putting the shares on a P/E of about 19. While no dividend is expected this year, the bank's 56 pence per share net tangible asset value supports a price to book ratio of 0.73.

Whether Lloyds is a buy based on today's Q3 statement, those ratings, and the general outlook for the banking sector remains your decision.

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Maynard does not own any share mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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  • Report this Comment On November 24, 2012, at 4:33 PM, LetThemFail wrote:

    When are journalists/commentators going to stop perpetuating the myth that PPI in the UK was "mis-sold." It wasn't accidental or some mistaken kind of clerical error where the wrong policy types were sold. With super normal profits of 80 pence for every £1 of PPI premiums received the banks thought were on to a "winner". That's because they flatly refused to payout on policies or attached them to financial products without even telling the customer.

    £18 billlion being set aside by the banks as compensation is not a clerical error. It's called fraud. Why don't journalists start calling it what it really is?

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