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.

Merryn

Claim 12 issues of MoneyWeek (plus much more) for just £12!

Let MoneyWeek show you how to profit, whatever the outcome of the upcoming general election.

Start your no-obligation trial today and get up to speed on:

  • The latest shifts in the economy…
  • The ongoing Brexit negotiations…
  • The new tax rules…
  • Trump’s protectionist policies…

Plus lots more.

We’ll show you what it all means for your money.

Plus, the moment you begin your trial, we’ll rush you over THREE free investment reports:

‘How to escape the most hated tax in Britain’: Inheritance tax hits many unsuspecting families. Our report tells how to pass on up to £2m of your money to your family without the taxman getting a look in.

‘How to profit from a Trump presidency’: The election of Donald Trump was a watershed moment for the US economy. This report details the sectors our analysts think will boom from Trump’s premiership, and gives specific investments you can buy to profit.

‘Best shares to watch in 2017’: Includes the transcript from our roundtable panel of investment professionals – and 12 tips they’re currently tipping. The report also analyses key assets, including property, oil and the countries whose stock markets currently offer the most value.