Mis-sold loan insurance costs Lloyds another 1 billion pound

LONDON (Reuters) - Lloyds Banking Group took another 1 billion pound ($1.6 billion) hit to compensate customers mis-sold loan insurance, taking its charge for the scandal to 5.3 billion and dragging it to a third-quarter loss.

Britain's biggest retail bank had already set aside 4.3 billion pounds to repay customers wrongly sold payment protection insurance (PPI), far higher than rivals as it had the biggest share of the PPI market.

Lloyds, which blames claims management companies for exacerbating the problem by submitting false claims, said it had paid out or spent 3.7 billion pounds on the issue by the end of September, or 70 percent of its previous provisions to cover the matter.

Like other British banks, Lloyds faces multi-billion pound losses to cover wrongly sold insurance on mortgages and other loans, often to people whose circumstances meant they were barred from making claims.

Lloyds has said around half of the PPI complaints it receives are from claims management companies (CMCs) which take a sizeable chunk of the payouts in return for handling the paperwork for clients.

But the PPI scandal is only the latest instance of British banks being found to have mis-sold products, a list that also includes the sale of specialist financial products known as swaps to small business, some of whom were left with big losses rather than the protection against interest rate moves they expected.

Along with other banks, Lloyds has complained that a high proportion of the PPI cases received from CMCs are erroneous and often relate to individuals who do not even have a PPI policy with the bank.

Lloyds, which had the biggest share of the PPI market, has an army of 6,000 workers dealing with PPI complaints, of which 1,000 are working on erroneous complaints.

Around 50 percent of claims from the worst-offending CMCs are invalid, banks say, substantially increasing their overall bill and eating up cash that could be used for lending.

Conversely the payouts are putting cash into the economy and boosting consumers' disposable income.

Lloyds declined to say what proportion of its overall provision is spent on administering false claims.

The total cost of payouts for the industry could hit 15 billion pounds and some analysts have estimated Lloyds' final PPI bill could rise to as much as 7.6 billion.

EVENTUAL COST

Lloyds said uncertainties remain as to the eventual cost of PPI and says it will be in a better position to make an assessment at the time of its yearly results next March.

Craig Lowther, managing director of claims management firm MoneyBoomerang, says the banks have underestimated the true scale of their exposure.

"The banks know exactly what they are liable for in terms of mis-sold PPI but they're announcing it in tranches every few months to protect their share price," he said.

Lloyds also made a 150 million pound provision in relation to German insurance business litigation, taking its charge for the issue to 325 million. It relates to claims in the German courts relating to policies issued by Clerical Medical Investment Group and sold by intermediaries, and follows German court decisions in July.

On a more positive tack, Lloyds announced falling losses from loans that turn sour and said its cost-cutting programme was ahead of target.

The bank has reduced its loan book, cut costs and reined in bad debts as part of a recovery plan devised by Chief Executive Antonio Horta-Osorio to turn around the bank, which was bailed out in 2008 leaving Britain with a 40 percent stake.

Lloyds said its bad debts this year were expected to fall to about 6 billion pounds, 1.2 billion less than it had expected at the start of the year. Bad-debt losses in the third quarter fell 35 percent from a year ago to 1.26 billion.

The bank said it is on track to cut costs to 10 billion pounds this year, down 1 billion from 2010 and two years ahead of target. It said it expects to cut its non-core assets by about 38 billion pounds this year, 13 billion more than it had planned at the start of the year.

Lloyds also reported a pretax loss of 144 million pounds for the three months to the end of September, compared with a loss of 607 million a year earlier. However, its underlying profit rose to 840 million pounds from 419 million a year before.

Shares in Lloyds were up 2.6 percent to 43.18 pence at 1000 GMT, outperforming a 0.9 percent rise in the European banking index, as progress in the bank's recovery plan overshadowed the increased cost of correcting past wrongdoing.

"We believe the company is making excellent progress in improving performance in the underlying business," said analyst Gary Greenwood at brokerage Shore Capital.

($1 = 0.6207 British pounds)

(Editing by David Holmes)

Source: http://news.yahoo.com/lloyds-reveal-hike-ppi-compensation-costs-000720843--finance.html

aziz ansari aziz ansari katherine jenkins peyton manning broncos mexico city earthquake stand your ground law dancing with the stars season 14