PPI announcement wipes £2 billion off Lloyds share value

PPI anbnouncement wipes £2 billion off Lloyds share value

More than £2 billion was wiped off the share value of Lloyds Banking Group (LBG) following their announcement that they have had to increase their PPI payout provision by another £1.8 billion.

News of the move caused share prices to drop by almost 4%.  City experts also claimed investors were disappointed that there was no announcement that the bank would pay a 2013 dividend.

Higher

The PPI hike was over £½ billion higher than market analysts had been expecting and is expected to fund payouts for another 550,000 successful PPI claims.

It is the seventh time LBG – which owns Lloyds, the newly formed Trustee Savings Bank, Halifax/Bank Of Scotland and Black Horse – has had to increase the amount they have set aside to pay successful claims in the UK’s biggest ever financial scandal.

At an estimated £20 billion it’s almost twice the £11.8 billion bill for dodgy pension sales in the late 1980s and 90s and completely dwarfs the £2.7 billion paid out for endowment mortgage mis-selling.

Fiendishly hard

Commenting on the size of the latest increase Lloyds finance director George Culmer described trying to predict the total cost of PPI was ‘fiendishly hard’ but the bank thought it had got it right this time.

“It’s a big number and it’s obviously disappointing.  There are always risks, but we think it’s appropriate,” he said.

Rising costs

Consumer champion Which? has calculated that the banks are close to using up all the money they have previously set aside which is why LBG increased their payment pot.  They also believe that it indicates the costs will continue to rise for other banks too.

Royal Bank Of Scotland recently announced their own payout fund was being increased by a further £650 million.

Denial

Which? has calculated the total set aside to pay successful claims is £2 billion higher than the £20 billion being quoted by other sources.  Executive director Richard Lloyd said: “The cost of PPI mis-selling is a stagger £22 billion and with the banks continuing to increase their provisions it shows they are still in denial about the size of this scandal.”

The Financial Ombudsman Service (FOS) recently announced they have a backlog of 400,000 cases which have previously been rejected by the banks.  They have 2,000 staff working on them, but still anticipate it will take them two years to clear the backlog.

The service is currently upholding 65% of all rejected PPI claims in favour of consumers.  Meanwhile thousands of new claims are being launched by consumers who believe their PPI policies were mis-sold to them.