Lloyds bank posts net profit slump on mis-selling scandal

25th February 2016, Comments 0 comments

Lloyds Banking Group on Thursday announced a 59-percent slump in annual net profits on huge fresh costs linked to the mis-selling of a controversial insurance product.

But its share price surged to the top of the London leaderboard, as investors welcomed a rise in underlying profits and the offer of a special dividend to shareholders.

LBG, which has been returned almost fully to the private sector after a state-bailout during the financial crisis, said in a statement that profit after tax tumbled to £466 million ($648 million, 590 million euros) last year compared with £1.125 billion in 2014.

It was dragged down by a further £2.1-billion provision incurred in the fourth quarter to compensate customers who were mis-sold payment protection insurance (PPI).

LBG last year set aside a total of £4.0 billion to cover the fallout of PPI, including administrative costs.

The bank's total bill for PPI now stands at £16.0 billion -- far higher than any other British bank caught up in the scandal.

PPI became controversial after it was revealed that many customers had been sold it without understanding that the cost was being added to their loan repayments. British authorities subsequently banned simultaneous sales of PPI and credit products.

In 2011, British banks lost a high court appeal against tighter regulation of PPI, which provides insurance for consumers should they fail to meet repayments on a credit product such as consumer loans, mortgages or payment cards.

Stripping out the effects of PPI, Lloyds said underlying profits grew 5.0 percent to £8.1 billion last year.

Its share price surged almost 9.0 percent to 67.5 pence in early deals on London's benchmark FTSE 100 index, which was up 1.4 percent overall.

The British government bailed out Lloyds at the height of the financial crisis in 2008 at a cost of some £20 billion, handing the state a 43-percent stake in the bank.

It has since reduced its holding to around 9.0 percent following numerous share sales.

Prime Minister David Cameron's government in January said it would delay selling the final tranche of shares owing to turbulence in financial markets.

It had intended to start offloading the final tranche of shares before the second-half of 2016.

"The public sale of Lloyds is still on ice, and while the share price shot up this morning, it's still around 10 percent shy of where it needs to be for the government to break even on the bailout," said Laith Khalaf, senior analyst at Hargreaves Lansdown stockbrokers.

"It now seems unlikely the deal will resurface again before the Brexit vote, given the market volatility we could see as we approach the referendum date."

As Britain prepares for a June 23 referendum on its EU future, Cameron has warned that the country's departure from the European Union would threaten its economic and national security.

But London Mayor and Conservative rival Boris Johnson has dealt a blow by backing a so-called Brexit despite Cameron winning a deal on EU reforms.

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© 2016 AFP

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