Lloyds Banking Group yesterday saw its share price slip by 1.9% after the company presented a quarterly report that showed profits all but decimated by a late surge in PPI claims ahead of the August 31st deadline. PPI expenses over the quarter totalled £1.8 billion, taking the total expense for the miss-selling scandal to a staggering £22 billion.
The extent of the late rush of claims had not been anticipated and led to Lloyds chief executive expressing his disappointment in the impact on the bank’s bottom line over the three months. Of all the British banks caught up in the PPI scandal, Lloyds was the biggest offender and has, as such, borne the brunt of the total of £50 billion in compensation that has been paid out across the industry – almost half.
The end result of the unexpectedly high expense was a 97% drop in profits over the three months ending September 30th to £50 million from £1.8 billion over the same period in 2018. A further negative influence on the final profit figure was an £87 million rise in impairments to £371 million, attributed to “a single large corporate charge”.
Despite the disappointments, Lloyds’ recently appointed chief financial officer William Chalmers struck a bullish tone by stating that he saw the bank’s performance as ‘resilient’ in the context of a ‘challenging’ environment. As a sector, retail banks are all struggling to eke out profits from the current super-low interest rate environment, with global economic and geopolitical uncertainty applying additional pressure.
Investors will also have been interested in the announcement of an impending board shake-up headlined by the confirmation that current longstanding chairman Lord Blackwell will retire at some point within the next 18 months. That has been provoked by the fact that under corporate governance rules, his 9 years of service on the Lloyds’ board mean that by 2021 he will no longer qualify as an ‘independent’ chair. The other big change is that CFO Juan Colombas will also retire. Two new non-executive directors have also been appointed – Sarah Legg and Catherine Woods.
CFO Chalmers admitted that the £1.8 billion PPI cost the bank considers to be outstanding is a ‘best estimate’ rather than a final figure. A further complication is a new wave of claims from the governmental Insolvency Service’s official receiver, which has made a large number of claims on the behalf of the estates of deceased individuals declared bankrupt. Any PPI compensation would be paid to the estate and then on to the individual’s creditors – likely to be other banks. Banks are considering disputing such claims on the grounds it is not possible for the official receiver to genuinely know if PPI was mis-sold to deceased individuals.