Lloyds serves up a dead mouse

Lloyds Banking Group unnerved the market this week by announcing yet another jump in its provision for mis-selling payment protection insurance (PPI). It has set aside a further £1.8bn in compensation.

It is now unlikely to resume paying a dividend until later this year or 2015. The Treasury aims to sell some of its stake in the bank back to private hands this year.

What the commentators said

Lloyds’ full-year update was “akin to a gourmet platter with a dead mouse in it”, said Jonathan Guthrie in the FT. It has made good progress since the financial crisis, running down non-core and impaired assets, and winning market share and margin in the economic recovery. Underlying profits were £1bn higher than expected in 2013. But the latest PPI provision was a shock.

It probably won’t be the last, said Jill Treanor in The Guardian. Not long ago the bank said it thought the number of PPI complaints would start to wind down; now it apparently expects another 550,000 claims. “This management team… has some explaining to do.”

The bank has now set aside almost £10bn for PPI payments, enough to give the entire country a 2.5p reduction in basic income tax for a year. “Quite a bill” considering that Lloyds had insisted it was ‘on the side of the angels’ when it came to PPI, said Treanor.

Lloyds’ ongoing difficulties, and the delay in the dividend payment, suggest that the government shouldn’t rush to return the bank to the private sector, said Ian King in The Times.

Postponing the sale offers the prospect of better returns in future if it wants to maximise profits from getting Lloyds off its hands – which, given the low odds on “getting any kind of return from RBS any time soon, it should certainly” be seeking to do.

• Stay up to date with MoneyWeek: Follow us on TwitterFacebook and Google+

MoneyWeek magazine

Latest issue:

Magazine cover
Russia's land grab

What it means for your money

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues
Shale gas 'fracking' promises to transform Britain's energy market. Find out what it is, what it means, and how to invest.

More from MoneyWeek

FREE REPORT:
What you should really do with your money (2014 Edition)


How to buy and sell penny shares

A beginner's guide to investing in gold

How to invest in British fracking