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Bank facing £1.8bn bill

Lloyds facing higher than expected claims for PPI payouts

Lloyds Banking Group

Rush on claims will see PPI payment rise (pic: Terry Murden)

Lloyds Banking Group said the late rush of claims for mis-selling of Payment Protection Insurance (PPI) last month could cost it an extra £1.8bn.

The bank says that at the time of its half-year results in July it had assumed that PPI claims would continue to come in at the rate of 190,000 a week.

However, Lloyds said it received 600,000-800,000 a week in the run-up to the final deadline for claims.

It said: “Including claims by the Official Receiver, the group now estimates that it will need to make an incremental charge for PPI claims, in addition to the provisions to 30 June 2019, in the range of £1.2bn to £1.8bn in its Q3 interim management statement.”

Later, Barclays said it expects to increase its provision for PPI redress in its Q3 2019 results by between £1.2bn and £1.6bn.

Clydesdale Bank shares plummeted by 20% last week after it announced the impact of the late claims rush, while RBS said it will face a bill of nearly £1bn.

Market reaction

Russ Mould, investment director at AJ Bell, said: “Lloyds’ management are going to be happy when the PPI saga is over. Sadly for the bank the nightmare is still very much alive as evident by an increase in charges and provisions linked to mis-selling claims.

“That has also resulted in the share buyback programme being suspended, thereby removing one of the few positive supports to its share price.

“Lloyds’ shares have been drifting downwards for months as investors worry about the scale of PPI claims, pressure on lending margins and also the general impact on Brexit on consumer finances and whether it could lead to an increase in bad debts.

“Lloyds isn’t alone with these issues. Royal Bank of Scotland and CYBG last week warned of a further hit from a deluge of late PPI claims.

“Investors in Lloyds’ shares are sadly getting used to a constant string of bad news. Once the PPI saga is wrapped up, one will wonder what the next dark cloud will be to hang over the sector.”

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