Lloyds Banking Group suffers fresh losses
State-rescued Lloyds Banking Group suffered a fresh setback on Thursday, posting a first-quarter net loss of £2.4 billion after allocating a vast sum to compensate clients who were mis-sold insurance.
The British bank's share price fell sharply in reaction.
The loss after tax of £2.4 billion (2.7 billion euros, $4.0 billion) for the three months to March 31 compared with a net profit of £169 million in the first quarter of 2010, LBG said in a results statement.
LBG, 41-percent owned by the taxpayer, said it was allocating £3.2 billion to cover payouts to customers who were mis-sold payment protection insurance (PPI).
British banks last month lost a high court appeal against tighter regulation of PPI, which provides insurance for consumers if they fail to meet repayments on a credit product such as personal loans, mortgages or credit cards.
LBG, which on Thursday also reported a first-quarter pre-tax loss of £3.4 billion, said its losses "principally" reflected the £3.2 billion PPI provisions.
The lender also announced an impairment charge of £2.6 billion, an increase on the first quarter of 2010, as a result of the dire state of Ireland's economy.
"The charge was approximately £500 million above our initial expectations, which was predominantly due to Ireland where we are now allowing for further potential falls in commercial real estate prices of approximately 10 percent," LBG said in its earnings statement.
The bank's PPI provision was meanwhile far larger than analysts had expected, causing LBG's shares to slump 7.89 percent to 53.44 pence in early afternoon London trade.
Stripping out the PPI provision, the lender made a pre-tax profit of £284 million in the first quarter, compared with £1.1 billion a year earlier.
The earnings update is also the first under new chief executive Antonio Horta-Osorio, who began his role in March after stepping down as head of British operations at Spanish banking group Santander.
"These results have disappointed the market due to the number of one-offs affecting the performance and a lack of positive guidance around the medium-term earnings power given that the new CEO's strategic review only completes next month," said analysts at brokers Killik & Co.
"There certainly seems to be an attempt to put through all possible provisions and reduce the underlying expectations prior to the tenure of the new CEO," they added in a note to clients.
LBG's underlying performance shows the lender is slowly recovering after a massive government bailout at the height of the financial crisis. It suffered huge losses in 2008 and 2009, as bad debts rocketed in the wake of LBG's takeover of former British rival HBOS.
It has since shed thousands of jobs as it attempts to turn around its fortunes but the vast sum set aside to cover the PPI compensation is seen as another setback for LBG.
PPI became controversial after it was revealed that numerous consumers had been sold the insurance without understanding that the cost was being added to their loan repayments.
Britain's Competition Commission has since banned simultaneous sales of PPI and credit products.
© 2011 AFP