Lloyds loses £439m as it increases PPI provision by £700m

Lloyds Banking Group has posted a half-year loss of £439 million and announced that it is to once again increase the provision for payment protection insurance (PPI), up by £700 million to £4.27 billion.

Lloyds Bank, which is 39 per cent owned by the ULK taxpayer, also confirmed that it had received subpoenas from foreign authorities to investigate a number of its employees over their involvement in the Libor interbank lending scandal.

Barclays has already been fined a total of £290 million by US and UK authorities and other banks as well as Lloyds are being investigated. The bank said that it did not know how much its liability would reach concerning possible fines for Libor manipulation.

In a statement Lloyds Banking Group said: "Certain members of the group have received subpoenas and requests for information from certain government agencies and are co-operating with their investigations," adding that at this stage it was not possible "to predict the scope and ultimate outcome".

The bank said that some employees were defendants in private lawsuits, including "purported class action suits in the US with regard to the setting of Libor".

Lloyds Bank has been the hardest hit of all the high street banks over the PPI scandal. They sold millions of loans with PPI attached. After the Financial Services Authority won a high court ruling, the bank agreed to settle the compensation claims and other UK high street banks followed suit, though with lower liabilities.

The increase in provision is not just for paying compensation but also covers the cost of investigating whether a claim is valid. Antonio Horta-Osorio, the chief executive of Lloyds has claimed that 1 in 4 PPI claims the bank has received are not related to Lloyds and it has had to employ 1,000 to deal with the claims.

Mr Horta-Osorio acknowledged the need for banks to rebuild trust. He said: The banking sector is clearly facing a deep crisis of confidence and trust.

“We know, having talked to our customers, that it will only be through an unswerving determination to 'do the right thing' and a fundamental commitment to anchor our business in activities which support the broader economy and contribute to prosperity, which will address and rebuild that trust.

“This will take time and effort but we have to undertake it.

"We will tackle issues from the past in a way that will, in the long run, allow us to earn back customer trust and confidence."

Mr Horta-Osorio is 18 months into the top role at Lloyds after being recruited from Santander on an £8 million annual salary. He had to take extended sick leave before Christmas 2011, after suffering from exhaustion.

Underlying profits in Lloyds increased by £715 million to £1.06 billion, just ahead of analysts’ expectations.

Meanwhile Mr Horta-Osorio said the bank was on course to meet its lending requirements to small businesses of £12 billion and that it is likely to exceed this by £1 billion as a result of its involvement in the Funding for Lending scheme.

Lloyds Banking Group shares have fallen since his appointment as the fallout from the PPI scandal and the re-structuring required as a result of the disastrous takeover of HBOS just before the financial crisis have hit investor confidence.

Shares in Lloyds Banking Group were flat at 30p on the results announcement, representing an £11 million paper loss to the taxpayer.

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