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Lloyds latest to be surprised by PPI deadline with £1.8bn claims surge

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
A branch of Lloyds Bank on Oxford Street, central London. Photo: Yui Mok/PA Images via Getty Images

Lloyds Bank (LLOY.L) has become the latest high street bank to warn that it will take a bigger-than-expected hit from the PPI deadline.

Lloyds said on Monday that it received a “higher than expected” number of PPI claims in August “with a significant spike in the final days before the deadline expired” on 29 August.

The bank received 600,000 to 800,000 calls about PPI claims each week in August, well above the 190,000 level it had forecast. Lloyds had set aside £650m to cover PPI claims but warned on Monday that it will likely need an extra £1.6bn to £1.8bn to cover claims.

As a result of the unexpected charge, Lloyds has cancelled the remainder of its share buyback plan for this year. The bank was due to spend a further £600m buying back its own shares in the remainder of 2019.

Lloyds shares fell by 2% in early trade on the London Stock Exchange on Monday.

Monday’s announcement means Lloyds has become the fourth major banking group to take a hit from the PPI deadline in the last week.

Royal Bank of Scotland (RBS.L) said last Wednesday it would likely have to set aside an additional £900m to cover PPI claims. CYBG (CYBG.L), which owns Clydesdale Bank, Yorkshire Bank, and Virgin Money UK, said that it would have to set aside an extra £450m, while Co-op Bank said on Thursday that it received a “substantially greater volume” of PPI claims without providing a guidance as to the cost.

Speculation is now mounting that rivals Barclays (BARC.L) and HSBC (HSBA.L) will also have to announce big provisions to cover PPI claims.

“It looks fairly obvious to us that very significant increase in the complaints volume in August is what the broader industry experienced,” UBS analysts Charmsol Yoon and Jason Napier wrote in a note to clients last week after CYBG announced its hit.

“We see negative read-across to other UK banks, including Lloyds, Barclays and HSBC as reasonable, with updates from these banks looking increasingly likely.”

PPI was a form of insurance intended to help people maintain loan repayments if they fell on hard times. However, the product was aggressively marketed by banks in the 1990s and 2000s to help boost profitability. A 2011 court case ended the practice and opened the door for a wave of compensation claims from consumers.

PPI was already the most expensive banking scandal in UK history and the string of recent provisions means banks have now spent over £50bn on compensation and redress. Lloyds has taken the biggest hit, spending over £20bn on PPI related costs.

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Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.

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