Shareholders pay for £22billion PPI disaster at Lloyds
Buyback scrapped as bill jumps by another £1.8bn
LLOYDS has been forced to abandon plans to return cash to shareholders after being stung with yet another PPI bill of up to £1.8bn.
The lender’s woes mean it is unable to continue a share buyback intended to boost the share price for 2.4m long-suffering investors.
It is a major embarrassment for chief executive Antonio Horta-Osorio, who vastly underestimated the scale of the PPI scandal eight years ago when he claimed enough cash had been set aside to deal with it.
In 2011, shortly after taking over at Lloyds, the Portuguese businessman said the bill would total £3.2bn, adding that a provision of this amount ‘draws a line under the issue’.
He has, in fact, been forced to set aside £21.9bn to cover compensation payments to customers mis-sold payment protection insurance. In a further blow to the industry, Barclays warned the scandal would cost it another £1.2bn to £1.6bn, taking its total bill as high as £11.2bn.
Royal Bank of Scotland and Clydesdale and Yorkshire Banking Group last week set aside extra cash following a spike in claims from customers ahead of the August 29 deadline.
Analysts said shareholders were paying for the crisis.
Neil Wilson, of trading firm Markets.com, said: ‘Lloyds again got its sums completely wrong over PPI. Banks have consistently and systematically failed to account properly for PPI claims.
‘Shareholders should be banging down the boardroom doors and demanding the heads of those responsible. The other great PPI scandal is how shareholders have been consistently low-balled, fobbed off and undersold the impact of the redress, leaving them with lower capital returns and lower dividends than they would have expected.’
Lloyds’ latest bill comes after it was deluged with as many as 800,000 claims for PPI compensation every week ahead of the deadline in August.
This surge in complaints took the bank by surprise and is expected to cost it between £1.2bn and £1.8bn – on top of the £20.1bn already set aside.
The extra cost has forced Lloyds to axe its 2019 buyback programme, where the bank purchases stock on the open market and then cancels it.
This reduces the number of shares in circulation and means each individual one is more valuable, driving up the price.
Lloyds had been planning to spend £1.75bn on purchasing shares but has suspended the programme with £600m of this money unused. It is a blow for Horta- Osorio, who bragged in February about his lender’s ‘market-leading returns’.
The Financial Conduct Authority imposed a deadline for PPI claims of August 29, in an effort to draw a line under a scandal which has cost the industry over £50bn. This cut-off date sparked a last-minute scramble for compensation by customers.
Lloyds was expecting to get 190,000 claims per week but in the final month this surged to between 600,000 and 800,000, forcing it to set aside extra cash.
The bank was by far the most enthusiastic seller of PPI policies, which were meant to protect borrowers if they became ill or lost their job but were often sold to those who neither wanted nor needed them.
Lloyds’ shares rose 0.3pc, or 0.14p, to 50.18p.