Lloyds Banking Group count cost of £1.1 billion ‘legacy issues’

Lloyds Banking Group continued to count the cost of past misdemeanours today after taking a further £1.1 billion hit from “legacy issues” in the year to date.

The bill included an extra £600 million to cover mis-sold payment protection insurance (PPI) and £226 million from this week’s revelations on rate-rigging, which included its manipulation of the Bank of England life-support scheme.

Excluding the one-off charges, Lloyds said its underlying performance continued to improve as it reported a 32% jump in profits to £3.8 billion for the six months to June 30.

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The overall bottom-line profit of £863 million, which includes the £1.1 billion hit from legacy issues, was down from £2.1 billion a year earlier.

Despite the group continuing to be haunted by matters dating back several years, chief executive Antonio Horta-Osorio said there were encouraging signs from the state-backed lender, which is still 25% taxpayer owned.

He plans to publish an update on his strategy in the autumn, having now overseen the bulk of a three-year transformation plan. The group is also preparing to pay a “modest” dividend next year, subject to regulatory approval.

Today’s half-year results revealed that the bank’s total bill for PPI now stands at £10.4 billion, with more than £2 billion relating to administrative costs.

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Lloyds - which employs over 6,000 staff in Calderdale - is forecasting a slower decline in complaints levels, with today’s increased provision accounting for an extra 155,000 complaints at a cost of £260 million, although £190 million relates to additional expenses.

Royal Bank of Scotland also set aside another £150 million for PPI claims last week, taking its total from the scandal to date to £3.25 billion.

Like RBS, Lloyds is benefiting from the recovery in the wider economy as better conditions mean reduced levels of bad debt and increased lending.

Lloyds, which owns the Halifax, said it provided one in four of all mortgages to first-time buyers in the first half, with lending of £5.7 billion to more than 43,000 customers.

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Overall new mortgage lending was £20 billion - £6 billion higher than in the first half of 2013 - while it said it has lent almost £1 billion through the Government’s Help to Buy mortgage guarantee scheme.

The company added that around 10% of its new residential mortgages were written at a loan-to-income ratio at or greater than a 4.5 multiple.

Retail profits rose 32% to £1.7 billion in the first half as Lloyds also upgraded its net interest margin - a key measure of profitability - to around 2.45% for the full-year.

Mr Horta-Osorio said: “It has been a successful first half for the group. With our initial three-year strategic plan now substantially complete, we are progressing our plans for how we will take the group forward into 2015 and beyond, and take advantages of the new growth phase of the UK economy.”

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The period saw the Government sell 24% of its remaining shares in the bank, while Lloyds also floated a larger-than-expected 35% of TSB on the stock market.

The unit, which has more than 600 branches, has been re-launched after Lloyds was forced to offload the sites under European rules on state aid. It must dispose of its holdings in the business by the end of next year.

TSB today reported a 17% fall in profits to £78.6 million as a result of it operating on a stand-alone basis and no longer benefiting from the economies of scale of a larger group.

It currently holds a 4.2% share of the current account market, although in the three months to April it opened 9.2% of all new and switching current accounts, ahead of its long term target of 6%.