Lloyds Banking Group has reported a 7% fall in half-year pre-tax profits as its bill for the payment protection insurance scandal soared past £20 billion amid a surge in late claims.
Shares in the lending giant fell 4% as it said pre-tax profits dropped to a worse-than-expected £2.9 billion for the six months to June 30 after revealing another £550 million hit from the mis-selling saga in the second quarter.
The extra provision for payment protection insurance (PPI) came as the number of claims jumped ahead of the August 29 deadline, bringing its total in the half-year to £650 million – and the total for the scandal so far to a mammoth £20.1 billion.
On an underlying basis, Lloyds said pre-tax profits slipped 1% to £4.19 billion in the six months to June 30.
Lloyds chief executive Antonio Horta-Osorio said that, while the economy has remained resilient amid Brexit, the “continuing uncertainty is having an impact and leading to some softening in business confidence as well as in international economic indicators”.
But he insisted the group is “absolutely prepared for whatever happens” amid mounting fears that Prime Minister Boris Johnson is putting the UK on course for a no-deal Brexit.
Lloyds finance boss George Culmer said the level of PPI activity had “caught us by surprise”, with between 190,000 and 200,000 requests for information now being made each week, though only 10% of these are converted into actual claims.
Other banks are set to confirm similar increases in their PPI bills this week, with Barclays reporting on Thursday and Royal Bank of Scotland on Friday.
The Lloyds results showed that bottom-line figures were also hit by £182 million restructuring charges and £296 million of other costs, including a charge for ending its huge £100 billion contract with asset manager Standard Life Aberdeen.
The results showed that the bank’s retail lending business continued to come under pressure from intense competition in the mortgage market, with its net interest income – a key measure performance for banks – dropping 3% in the first half to £4.4 billion.
Its open mortgage book fell 1% to £264.9 billion, while its closed mortgage book dropped 11% to £19.8 billion.
Lloyds said the mortgage market “stays tough”, although it had seen a slight easing in conditions in recent months.
Richard Hunter, head of markets at interactive investor, said: “Yet another PPI provision of £550 million for the second quarter is unwelcome, leaving Lloyds counting the days until the 29th August deadline arrives and the issue can finally be consigned to the history books.
“Meanwhile, competition in its important mortgage market remains fierce, the historically low interest rate environment is not one which favours the banks in general and management outlook from the company is relatively subdued.”