Lloyds Banking Profit Plummets on PPI Provisions -- Update

By Max Colchester 

LONDON-- Lloyds Banking Group PLC said that profits sank in the third quarter after the bank put aside more cash to compensate customers who were sold insurance products they didn't need.

The U.K.'s biggest retail bank said that the Brexit vote in June had so far had only a muted impact on the British economy.

Executives left Lloyds's dividend outlook unchanged even though aftertax profit fell 68% to GBP219 million ($266.4 million) in the three months to end-September from the same period last year. The bank booked a GBP1 billion provision to compensate customers who were sold Payment Protection Insurance. The news sent Lloyds shares down 2.5% in early trading.

The funds set aside for compensating customers is "the last big PPI provision that we expect to take," said Lloyds Chief Financial Officer George Culmer.

U.K. regulators have proposed to cap the compensation for Payment Protection Insurance in 2019, later than Lloyds thought.

The bank said third-quarter revenue rose 1% to GBP4.28 billion.

The vote to leave the EU has so far had not resulted in "significant changes" in consumer behavior, said Lloyds Chief Executive António Horta-Osório.

Some business have deferred investment plans but "overall it is too early to assess any longer-term trends," Mr. Horta-Osorio said.

Lloyds's CEO urged the British government to borrow funds and launch a wide-scale infrastructure investment program to ensure the economy rides out the existing uncertainty after the country's vote to leave the European Union.

Faced with low interest rates, the bank continued to cut costs. ""There is more to come," said Mr. Culmer. The bank is also continuing to pull out of buy to let mortgages and the London housing market amid cooling house prices.

The U.K. government announced earlier this month that it would restart the privatization of Lloyds by drip selling its 9.1% stake into the market.

Mr. Horta-Osorio sought to allay speculation that he would soon quit the bank to look for another job as the government's sell down nears completion. "I am very happy aye Lloyds, I like the bank...I like our teams here," he said.

Write to Max Colchester at [e-mail]

(END) Dow Jones Newswires

October 26, 2016 03:59 ET (07:59 GMT)

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