Lloyds suspends buyback after new mis-sold insurance claims

Bloomberg

Lloyds Banking Group Plc suspended its share buyback after a last-minute rush of compensation claims for mis-sold payment protection insurance, taking its total costs for the scandal to 21.8 billion pounds ($26.7 billion).
Lloyds shares fell as much as 2.5 percent in London. The bank is making a further provision of between 1.2 billion pounds and 1.8 billion pounds in the third quarter after claims were as much as four times higher than expected, according to a statement on Monday.
The PPI scandal is the most expensive in history for UK banks, and while regulators had urged the public to seek redress for years through high-profile advertising campaigns, the surge before the August 29 cutoff caught lenders flat-footed. Royal Bank of Scotland Group Plc said it plans to set aside as much as 900 million pounds more for PPI, while CYBG Plc, the owner of the Virgin Money brand, plunged after adding to its provisions.
“Loyds again got its sums completely wrong,” Neil Wilson, chief market analyst at Markets.com, said in an email. British banks’ shareholders “have been consistently low-balled, fobbed off and undersold the impact of the redress.”
The policies, which were intended to cover missed debt repayments, were often sold using aggressive tactics and in the worst cases, banks misled customers by telling them that PPI was mandatory for loans. Lloyds’ new provisions have pushed the total cost for the industry above 50 billion pounds, according to New City Agenda, a London-based think tank.
Lloyds’ extra provision is at the top end of expectations, Bloomberg Intelligence analysts Jonathan Tyce and Georgi Gunchev wrote. The bank said it received about 600,000 to 800,000 PPI information requests per week during the deadline month, well above its previous assumption of 190,000 per week.
“The board will give consideration to the distribution of surplus capital at the year end and continues to target a progressive and sustainable ordinary dividend,” Lloyds said.
Lloyds, which is the most exposed British lender to PPI, had a 1.75 billion-pound buyback program for the year, and the suspension means about a third of that sum will likely be unused.
For two years, a major television ad campaign orchestrated by the UK Financial Conduct Authority featured an animatronic, heavily accented likeness of Hollywood actor Arnold Schwarzenegger, urging people to “do it nooooow” and see whether they qualified for a a PPI claim.
The regulator also set up a dedicated call center and said that as of June, it had received more than 44,000 calls and over 11 million views of its PPI website. Barclays Plc, the second most exposed UK bank, has yet to make a comment about the August PPI claim rush.