Lloyds profits hit by last minute PPI claims flood

The group, which includes Bank of Scotland and Scottish Widows, reported that pre-tax profits fell 7 per cent in the six months to 30 June, from £3.1bn to £2.9bn like-for-like as it set aside an additional £550m for future PPI cost due to a “significant increase in claims”.

While the bank said it would usually receive 70,000 information requests a week about PPI claims, nearly 200,000 customers a week are currently bombarding Lloyds with PPI compensation requests as the claims deadline looms.

Lloyds said it expects claims to rise to 5.8 million by the deadline and in anticipation a total of £1.1bn has been earmarked by the bank for compensation.

As many as 64 million PPI policies were sold in the UK from as long ago as the 1970s. 

They were designed to cover loan repayments if borrowers fell ill or lost their job, but many pushed onto people who didn’t want or need them or who could not use them.

For the industry, the PPI bill stands at £35.7billion.

Lloyds estimates it has sold 16 million PPI policies since 2000, including both legitimate and toxic ones, adding that just 54 per cent of these have since been dealt with.

Lloyds’ chief financial officer George Culmer said: “It’s obviously disappointing to see an increase in PPI claims. On one hand, we were happy to see the time bar as it meant more customers would come forward, and we’re glad that it’s having the desired effect.

“However, the extent at which it’s happening has caught us by surprise. We’re getting upwards of 190,000 requests a week, with only 10 per cent being converted into claims.”

However, requests went up to 150,000 a week in the second quarter of 2019 and to almost 200,000 in July.

The Financial Conduct Authority (FCA), which set the claims deadline, has been running an advertising campaign since 2018 with an animatronic head of Arnold Schwarzenegger encouraging consumers to “do it now”, to persuade people to make a claims for compensation if they were mis-sold PPI.

Despite the profit fall, Lloyds said its outlook for 2019 was in line with expectations as it had cut costs to offset the impact of the PPI claims.

Donald Brown, senior investment manager at Brewin Dolphin, said: “Net income and profits may be down, but against the current economic backdrop it’s a resilient set of results for the half-year.”