Insurance

Lloyds Profit Weighed Down in 3rd Quarter by Insurance Provision

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By CHAD BRAYOCT

British banks continue to pay a heavy price for a contentious product they sold to millions of consumers, years after the practice ceased.

On Wednesday, the Lloyds Banking Group became the latest firm to take another hefty provision — this time 1 billion pounds, or about $1.2 billion, in the third quarter — to compensate consumers who were improperly sold payment protection insurance. The lender has so far set aside £17 billion to cover claims.

Other British banks could announce additional provisions when they report third-quarter results over the coming days.

British banks sold about 45 million of the policies over two decades, through 2010, to consumers taking out mortgages, credit cards or other loans. The insurance was meant to cover monthly payments if a policyholder were unable to make them because of a debilitating illness, job loss or other reason.

British financial regulators eventually determined that the complex pricing and detailed policy conditions for eligibility to make claims made the product inappropriate for some consumers. The regulators took the industry to court in 2011, and the banks opted to settle.

From January 2011 to the end of this past July, banks have paid out £25 billion in claims to customers, according to the Financial Conduct Authority.

But the drag that payment protection insurance has had on bank results may soon end. The authority is expected to set a June 2019 deadline for consumers to seek compensation.

Banks had expected a 2018 deadline, but that changed after the regulator extended its consultation on the subject in August.

Lloyds was one of the biggest providers of the loan insurance in Britain and was fined £117 million in June 2015 for its handling of customer complaints related to the product. António Horta-Osório, the Lloyds chief executive, has called payment protection insurance the lender’s biggest “legacy issue.”

The bank’s latest provision “would be the last big P.P.I. provision we would expect to take,” George Culmer, chief financial officer, said on a conference call with journalists on Wednesday, referring to the insurance product.

Lloyds reported on Wednesday that profit fell 68 percent to £219 million in the third quarter, from £690 million in the same period last year.

Revenue declined 1 percent to £2.85 billion in the third quarter.

The results came after the British government said this month that it would begin selling its remaining 9.1 percent stake in Lloyds over the next 12 months through a trading plan managed by Morgan Stanley.

The government, which at one point owned more than 40 percent of Lloyds as part of an effort to support the lender during the global financial crisis, expects to recoup all of the £20.3 billion that it injected into the bank. It has already recovered about £16.9 billion through share sales.

Separately, Clydesdale Bank confirmed on Wednesday that it had made a “preliminary, nonbinding proposal” to acquire Williams & Glyn, the branch network that the Royal Bank of Scotland is required by European regulators to sell by the end of next year.

The sale, if completed, would remove a major headache for R.B.S., which warned in April that there was “significant risk” that it might not meet the deadline next year.

The bank must dispose of Williams & Glyn as a condition of the government bailout of £45 billion that it received during the financial crisis.

NY Times

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