Lloyds Banking Group has suspended its share buyback after a last-minute rush of compensation claims for mis-sold payment protection insurance (PPI), taking its total costs for the scandal to £21.8bn (€24.4bn).
Lloyds shares fell as much as 2.5% in London. The bank is making a further provision of between £1.2bn and £1.8bn in the third quarter after claims were as much as four times higher than expected.
The PPI scandal is the most expensive in history for UK banks, and while regulators had urged the public to seek redress for years through high-profile advertising campaigns, the surge before the August 29 cutoff caught lenders flat-footed.
Last week, Royal Bank of Scotland said it plans to set aside as much as £900m more for PPI, while CYBG, the owner of the Virgin Money brand, plunged after adding to its provisions.
“Lloyds again got its sums completely wrong,” said Neil Wilson, chief market analyst at Markets.com. British banks’ shareholders “have been consistently low-balled, fobbed off, and undersold the impact of the redress”.
The policies, which were intended to cover missed debt repayments, were often sold using aggressive tactics and in the worst cases, banks misled customers by telling them that PPI was mandatory for loans. Lloyds’ new provisions have pushed the total cost for the industry above £50bn, according to New City Agenda, a London-based think tank.
Lloyds’ extra provision is at the top end of expectations. The bank said it received about 600,000 to 800,000 PPI information requests per week during the deadline month, well above its previous assumption of 190,000 per week. Lloyds said:
The board will give consideration to the distribution of surplus capital at the year end and continues to target a progressive and sustainable ordinary dividend
Lloyds, which is the most exposed British lender to PPI, had a £1.75bn buyback programme for the year, and the suspension means about a third of that sum will likely be unused. Barclays, the second-most exposed UK bank, has yet to make a comment about the August PPI claim rush.
“It seems Barclays will be sure to follow suit,” said Mr Wilson. “At least the end is in sight for banks and their shareholders.”
The UK’s Financial Conduct Authority said that, as of June, it had received more than 44,000 calls and over 11m views of its PPI website.