Lloyds mis-selling hit cools prospects for government share sale

LONDON Fri Mar 1, 2013 4:59pm GMT

Rain falls outside a branch of Lloyds TSB in London August 4, 2011. REUTERS/Suzanne Plunkett

Rain falls outside a branch of Lloyds TSB in London August 4, 2011.

Credit: Reuters/Suzanne Plunkett

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LONDON (Reuters) - Britain's biggest retail bank Lloyds set aside another 1.5 billion pounds to compensate customers mis-sold loan insurance, halting a strong rise in its shares and cooling prospects for a sale of the government's stake.

MPs want to sell the state's 39 percent shareholding, acquired when it bailed out Lloyds during the 2008 financial crisis, as soon as possible and certainly by the next election in 2015.

Returning to taxpayers some or all of the 20 billion pounds spent on rescuing Lloyds would give the Conservative led-coalition a boost against the opposition Labour party which is ahead in opinion polls.

Senior executives at rival Royal Bank of Scotland, which was also bailed out with taxpayers' money, said on Thursday they were hopeful that the government would start selling its 82 percent stake next year.

Shares in Lloyds have had a strong run, up 44 percent in the last 12 months, as Chief Executive Antonio Horta-Osorio impressed investors by cutting the bank's loan book and costs more quickly than expected and reining in bad debts.

They closed on Thursday, the day before Lloyds announced the latest compensation figures, at 54 pence.

The strong performance had fuelled market expectations that the shares would soon hit 61 pence - the level the government regards as its break-even price, which could trigger a partial sale.

But on Friday they fell as much as 8.6 percent to just under 50 pence at one point after the higher compensation bill overshadowed full-year results that beat forecasts. The shares recovered partially and closed 2.2 percent lower.

Horta-Osorio said he was "very confident" taxpayers would get their money back.

His annual bonus of 1.5 million pounds will be paid only when the shares are trading above the 73.6 pence the government bought in at or the government sells at least a third of its holding for more than the break-even 61 pence. The break-even price takes account of fees the government has already received from the bank.

The CEO's bonus will be paid in shares and deferred until 2018.

Britain's Finance Ministry said on Friday there was "still work to be done" as the bank continued to deal with past problems. It did not comment on the likely timing of any share sale.

Lloyds expects to pay out a total of 6.8 billion pounds to customers wrongly sold payment protection insurance (PPI), more than any other bank. The next highest is Barclays on 2.6 billion pounds.

The policies were meant to protect customers in the event of sickness or redundancy, but were often sold to borrowers who did not want or need them.

More than 14 billion pounds has now been set aside by UK banks to deal with the issue and industry sources have said the final bill could hit 25 billion pounds.

Lloyds made an underlying pretax profit of 2.6 billion pounds in 2012, up from 638 million a year earlier and ahead of the consensus forecast of 2.4 billion pounds, according to Thomson Reuters I/B/E/S data.

The bank is also one of more than a dozen still being investigated by regulators for their role in a global rate-rigging scandal, but Finance Director George Culmer said it was not one of the lenders at the centre of the probe.

"This isn't something we're just passive about," he said. "We do make proactive enquiries. It's not something that we get a lot of heat on."

Lloyds also set aside 400 million pounds to compensate small businesses mis-sold complicated interest-rate hedging products. The provisions dragged the bank to a pretax loss of 570 million pounds for the year, compared with a 3.5 billion loss in 2011.

Horta-Osorio said Lloyds' plan to sell 632 branches to the Co-Op remained "on plan" despite reports that it was on the verge of collapse.

However, the bank is also preparing for a stock market listing of the branches as a fall-back option.

(Editing by Erica Billingham)

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Comments (1)
ema123 wrote:
The banks take a hit?

Bob Diamond personally took over 100 million – things have not changed, the banks can get around the firewall between investment banks and the high street.

The EU is motivated by numerous countries, and it can have power. We are the EU. We are a trading nation. We are leaders.
The banks investment arm gambling zero sum gain, any win is offset by an equal loss, to line their own pockets, with all risk borne out by the shareholder, tax payer, pensions and numerous front line services.

Corruption – Barclays loaned vast sums to a Middle East entity, just to lend it right back to avoid borrowing from the government which would risk their bonuses – the profits go to the Middle East entity, the risk borne by the tax

The economy was crippled when the banks stopped lending to business – because they did not want to be landed with the vast debt they had been selling.

Cameron, Boris Johnson and many papers argue that limiting bonus is bad, in spite of the fact it has caused a decade worth of damage and devastated our pensions. I trust none of these individuals or members of their family have seen comfortable overpaid bank job in a few years’ time.

The financial sector can seemingly corrupt politicians, or at least make them dumb and blind. Bad banks damage economies, puts people out of work, and destroys pensions and opportunities for our children.

Banks have been appealing to your stupidity and greed – suggesting that they are looking for high flyers, that getting out of the mess the Bonus BANKS created, can only be done by them.

They will tell you limiting bonuses will push up salaries, then contradict themselves by saying that banks will leave.
UNDERSTAND, a zero sum gain gamble benefits no one, if you cannot understand that, then stupidity and greed will hit the weakest.

If we do not protect our weakest, then be sure we are sinking.

Mar 01, 2013 8:38am GMT  --  Report as abuse
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