Lloyds pre-tax profits rise 23% as bank looks to end of PPI complaints

Lloyds Bank’s pre-tax profits rose 23% in the last year, despite pressure from PPI compensation claims according to the Financial Times.

Pre-tax profits were £1.6bn, up 23% on 2017’s profits of £1.3bn. Last year the bank paid out £450m to address historic PPI claims.

Lloyds recently announced that it would set aside a further £90m for PPI claims. The mis-selling of the Payment Protection Insurance policies is by a long shot the greatest mis-selling scandal in UK banking history.

The bank has paid more than £18bn to settle PPI claims since 2011. Clydesdale and Yorkshire Banking Group is setting aside a similar sum, saying it expects the “level of complaints to remain at an elevated level for a period of time.”

The final deadline for making PPI complaints is 29 August 2019. Lloyds is making plans for its final emergence from the mis-selling scandal.

Chief executive Antonio Horta-Osorio said: “We have again delivered strong financial performance with increased profits and returns, a significantly reduced gap between underlying and statutory profit and a strong increase in capital.”

Lloyds recently announced the latest in a series of cost-cutting measures. So far in 2018 more than 2,000 jobs have been lost at the bank. Last week Lloyds announced the closure of 49 branch closures, with the loss of 1,230 staff.

FCA plans deadline for PPI complaints

The Financial Conduct Authority (FCA), which is responsible for the conduct supervision of all UK regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA), announced on Friday that it plans to introduce a deadline for complaints about payment protection insurance (PPI).

Early this year, the FCA stated that it would be assessing whether there was a need for further intervention in PPI complaints handling generally, whereby consumers would need to make their PPI complaints or else lose their right to have them assessed by firms or by the Financial Ombudsman Service (the Ombudsman). 

Subject to consultation up to the end of 2015, a deadline would fall two years from the date the proposed rule comes into force. The FCA does not expect the ruling to become effective before spring 2016, therefore PPI consumers would have until at least spring 2018 to complain. This consultation will also set out plans for a proposed FCA-led communications campaign that will be designed to encourage consumers to complain in advance of that deadline, which will also include a proposed fee rule concerning the funding of the proposed communications campaign.

Following consultation, the FCA said it publish a paper before the end of the year, that will set out the full detail of these proposed rules and guidance; the evidence considered; reasons for the proposals; and an assessment of costs and benefits.

Since January this year, evidence has been gathered from firms, consumers through online surveys and discussion groups, as well as other stakeholders, regarding the PPI landscape and whether it is changing. An assessment has been carried out by the FCA as to whether the current approach is continuing to meet the objectives of securing appropriate protection for consumers and enhancing the integrity of the UK’s financial system.

According to the FCA, current complaints framework and its supporting supervisory work has resulted in compensation being paid to large numbers of consumers who were previously mis-sold PPI.

So far, more that GBP20bn redress has been paid to over 10 million consumers. But the FCA found that the large scale payment of redress has recently been accompanied by other trends such as a high and growing proportion of complaints are being made via claims management companies, with fee costs to the consumers who use them. Also a high and growing proportion of complaints relate to older sales (pre-2005 and even pre-2000), where the documentary evidence held by firms and consumers is likely to have significant gaps and recollections and oral evidence are becoming increasingly stale. In addition, there are a large number of complaints made that have turned out not to have involved a PPI sale.

The FCA said it considers that the introduction of a deadline and running a communications campaign would: prompt many consumers who want to complain, but have not yet done so, into action, resulting in them potentially getting redress sooner, and giving some of them the opportunity to pay off costly debt; and bring the PPI issue to an orderly conclusion, reducing uncertainty for firms about long-term PPI liabilities and helping rebuild public trust in the retail financial sector. Also, the FCA also considers that its intervention may encourage more consumers to complain directly to the firms, rather than using and paying claims management companies.

Lloyds profits increases to £1.2 billion while PPI compensation costs rise by £1.4 billion

Lloyds Banking Group has set aside a further £1.4bn to cover compensation claims by customers who were mis-sold payment protection insurance (PPI), but has declared a 38% rise in half year profits to £1.2bn, it was reported on Friday.

A total of £13bn for compensation costs has now been set aside by the bank, which was bailed out by the UK government during the financial crisis and received £22.5bn of taxpayers’ money.

The bank was recently fined a record £117m by the Financial Conduct Authority (FCA) over the mis-sold PPI.

Lloyds is said to have identified approximately 1.2 million previously defended PPI complaints for re-review at the end of 2014, but this figure has now increased to 1.4 million cases. Those cases were being reviewed following a fine by the FCA, as a result of an investigation into the way that around 2.3 million complaints were handled. The FCA investigation found the bank mis-handled complaints between March 2012 and May 2013.

According to reports, the three months to the end of June represents the last quarter in which the bank can make set aside PPI compensation against its corporation tax bill.

Antonio Horta-Osorio, Lloyds’ chief executive, was quoted as saying: “Today’s results demonstrate the strong progress we have made in the first half of the year.

“We remain focused on our aim to become the best bank for customer sand shareholders, while at the same time supporting the UK economy.”

The UK government has reduced its stake in the bank to 15%, down from the 43% that it bought at the height of the financial crisis This stake has been steadily reduced over the twelve months by sales of shares to institutional investors. Analysts expect the government to announce a discounted share sale to the public in the early half of next year, when the stake is set to be as low at 5%.

BBC Radio 4 explores ways to fix Britain’s broken banking system

On Saturday afternoon BBC’s Radio 4 reached the halfway point in a new series looking at what is wrong with British banking and how it might be repaired.

‘Fixing Broken Banking,’ presented by Michael Robinson, is an often wistful look at British banking’s past, present and future.

While the series’ first episode explored the emergence of contemporary British banking stained by scandals and a mechanical drive for efficiency and profit, the second episode, aired on Saturday, showed the personal touch still can thrive and prosper.

‘Fixing Broken Britain’s first episode explored the recent scandal of Payment Protection Insurance (PPI).

Theoretically existing to protect borrowers who find themselves unable to make loan repayments because of unexpected events, PPI was quickly transformed  from a form of protection into a hugely profitable form of attack – on the public.

Banks targeted the sick and the self-employed who were never eligible for payout  in the first place. Deliberately complicated fine print hid badly structured policies that many were unaware they actually bought. Bank customers handed over up to £5.5 bn per year for the High Street banks at its peak in the mid-2000s.

‘A fire hose of money coming in then going straight out,’ is how one PPI insider describes the practice.

‘I always thought the point of insurance was to protect people,’ says one interviewee. ‘Instead, it became a kind of insurance racket.’

Related article: Streets paved with gold: the Council that works for banks

Radio 4’s ‘Fixing Broken Banking’ places the responsibility for the scandal at the feet of a rotten banking management culture and automation.

A former consultant with McKinsey described how the drive for efficiency saw computers outflank decision-making by local bank employees with a knowledge of their customers.

While the financial regulators finally intervened in the PPI market in 2007 after finding evidence of harm done to consumers, the reputational damage to British banks was already done, Robinson argues.

In the second episode, aired on Saturday, Robinson travels to North England and Germany to find possible remedies for the reputational damage. There he finds banks successfully toiling under the ‘local banking for local people’ banner.

From Cumberland Building Society in Cockermouth to Handelsbanken, a successful new arrival from Sweden which now has 132 British branches; Robinson discovers that small and local can often thrive.

The success of Cumberland Building Society, which reportedly sailed largely unscathed through the financial crisis, is due to it following ‘one of the old rules of banking,’ Robinson says: ‘ Really knowing who you lend to.’

Eschewing the automated lending assessments of High Street banks, banks such as Cumberland and Handelsbanken use trained individuals to decide loan applications.

Travelling to a town in southern Germany, near Stuttgart, Robinson praises another El Dorado of ethical financial services where ‘nearly everybody banks locally.’

‘I’m not allowed to go outside my area to solicit customers,’ says the German local bank manager before adding, ‘I compare it to going to your doctor. You have to take down your pants. It’s the same going to your bank.’

The rationale is simple. While Plato may have written ‘Know Thyself,’ the aphorism to successful modern banking appears to be ‘Know Thy Customer.’

Fixing Broken Banking continues on Saturday 18 August at 12:00.

Written by  of  The Bureau of Investigative Journalism.