Lloyds to suspend buyback as PPI claims more than treble

Lloyds Banking Group, Trinity Road, Halifax.
Lloyds Banking Group, Trinity Road, Halifax.

Lloyds Banking Group, which owns the Halifax, has joined Yorkshire Bank in ramping up the amount of money it needs to pay out for mis-selling Payment Protection Insurance following a surge in claims.

Lloyds said that in the month leading up to the PPI deadline of August 29, claims per week more than trebled from around 190,000 to between 600,000 and 800,000.

The bank said it would suspend a planned £1.75bn share buyback scheme, setting aside £600m to meet the demand.

The decision comes after Royal Bank of Scotland, Co-op and CYBG, which owns Virgin Money, Yorkshire and Clydesdale Banks, increased their own PPI provisions following a surge of interest before the deadline.

Lloyds said the extra claims are expected to see a £1.2bn to £1.8bn charge added at its next set of results, taking the total for PPI provisions to more than £20bn.

However, Lloyds said it remains uncertain over the true level of claims, pointing out: “While the quality of these complaint volumes remains uncertain, given initial sampling, we believe the quality has continued at a low level.”

Banks have complained that customers were making claims even though they had never even taken out loans with the banks.

Lloyds had already revealed a £650m PPI charge at its half-year results, but this latest announcement will see that figure increase.

In the last few weeks, CYBG said it is setting aside an extra £450m after 340,000 customers requested information over PPI. Co-op Bank also said it had received a flood of requests and Santander UK was forced to extend the deadline after its website crashed under the strain of applications.

RBS said it could take a further £900m hit over the claims when it releases its third-quarter results later this year.

Analyst Gary Greenwood at Shore Capital said: “Following on from last week’s announcements by Royal Bank of Scotland and CYBG, Lloyds has this morning announced that it expects to take an additional PPI provision of between £1.2bn and £1.8bn due to a significant increase in requests for information ahead of the PPI deadline on August 29.

“The group had already taken around £20bn of PPI provisions, so this represents an increase of 6 to 9 per cent.”

He said Lloyds has stated that it will give consideration to the distribution of surplus capital at the year end and will continue to target a progressive and sustainable ordinary dividend.

“We do not expect the group will end the year with a material surplus capital position and so any further distribution is likely to be relatively small, in our view,” he added.

Prior to the announcement, Shore Capital saw fair value for Lloyds at 80p - a 60 per cent upside.

“This already included a ‘haircut’ for potential further conduct and litigation charges of £2.7bn, which is more than enough to cover the additional £1.2bn to £1.8bn of PPI provision announced today as well as the £550m that was announced with the second quarter results,” said Mr Greenwood.

“As such, we continue to view Lloyds shares as being materially undervalued and would see any share price weakness on the back of this disappointing announcement as an opportunity to build positions.”

He issued a “buy” recommendation on the stock.

PPI policies were sold alongside a personal loan or mortgage to cover repayments if borrowers fell ill or lost jobs, but many were unsuitable.