Lloyds to settle PPI claims
Lloyds has decided not to use the courts any further to contest the decision of the regulator, the Financial Service Authority, that it should pay restitution to customers who were mis-sold PPI loan insurance.
This will be welcomed by thousands of Lloyds customers, although it will be very expensive for Lloyds - which is making a provision of £3.2bn to cover the likely costs.
That £3.2bn charge means Lloyds is back in loss, to the tune of £3.5bn on a statutory or official basis.
My post from last night explains much of the background to this.
Ignoring one-offs, on what Lloyds calls a combined business basis, Lloyds remained in profit, to the tune of £284m, for the first three months of the year - although this was well down on the £1.1bn made in the equivalent period of last year.
There was also a charge of £1.1bn to cover the expected cost of Irish loans going bad. This was £500m more than expected.
The reason for the higher than anticipated Irish lending loss is that the new chief executive Antonio Horsa-Orsorio decided to factor in a further possible fall of 10% in Irish commercial property prices.
Other striking characteristics of these figures for the first quarter of the year is that net lending to small businesses rose, bucking the national trend, and overall income was down from £6bn to £5.2bn.
What stands out however is Lloyds' decision to settle with PPI claimants.
It was a unilateral decision, but will put pressure on the other banks to do the same.
The size of Lloyds charge implies that the big British banks will in total take a £9bn hit to settle PPI claims, with Royal Bank of Scotland, the second most exposed, perhaps taking a £2bn hit.
Update 09:21: For taxpayers, it is good news that Lloyds has been weaning itself off loans and loan guarantees provided by us.
So in the first three months of the year, there was a further reduction of £26bn of funding for Lloyds in effect provided by the state.
Which means that Lloyds' residual dependence on de facto loans from us is £70bn - with £26bn of this still owed to the Bank of England's Special Liquidity Scheme and £44bn of debt guaranteed by the Treasury (under the Credit Guarantee Scheme) still needing to be repaid.
Barring a meltdown in wholesale markets, Lloyds should be free of exceptional taxpayer funding support by the target of 2012.
By contrast, the timetable for privatising taxpayers' 41% stake in Lloyds is yet to be decided - although today's decision by the new chief executive to face up to the mistakes of the past (the PPI and Irish losses) should make privatisation easier.
The next milestone for Lloyds on the road away from state ownership and influence will be the announcement in June of Mr Horta-Orsorio's new strategy for the group.
Update 09:54: Royal Bank of Scotland will not make a decision till next week on whether to join Lloyds in agreeing to settle PPI cases.
It had the second biggest share of the PPI market, with around 20%, compared with 35% for Lloyds.
My banking sources are surprised by the magnitude of the PPI charge taken by Lloyds. It was significantly bigger than they had expected.
They would expect RBS to eventually take a PPI hit of around £1bn (as I mentioned in a post last month) rather than the £2bn implied by Lloyds' PPI provision.
That said, it is highly unlikely that RBS will quantify the potential PPI damage when it announces its first quarter results tomorrow.
On RBS's imminent results, I would expect it still to be in the red at the statutory level, including - for example - a debit from a market valuation of credit insurance provided to RBS by taxpayers under the Asset Protection Scheme.
But at the operating level it will be in profit. And RBS's general insurance operations should be back in the black (some would say 'at last') - which matters, because RBS is committed to dispose of these well-known insurance activities, probably by floating them on the stock market.
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