Part-nationalised lender Lloyds Banking Group (LLOY) falls 2.3% to 77.7p on Tuesday, as it reveals compensation costs for the mis-selling of payment protection insurance (PPI) continue to rise.


Web - Lloyds - 31 October

The high street lender's additional £750 million allocation takes the bill for its role in the scandal to more than £8 billion and casts a shadow over the government’s plan to fully privatise Lloyds ahead of the 2015 general election.


The government sold 15% of the taxpayers’ £20 billion stake in Lloyds Banking for £3.2 billion last month (17 Sept), making a £62 million profit. The timing of its increased compensation payments could not have been worse. Lloyds started growing its core business, making it a more attractive proposition, but the increased PPI provisions pushed it into the red in the third quarter with a £609 million loss. Investors must now wonder how much more of the bank's profits will be eaten into by its various scandals.


Despite its problems, the quality of Lloyds's revenues appears to be improving. Deposits have grown by 2% over the past 12 months while the lender's loan book improved 1%, reducing the bank's loan-to-deposit ratio to 114%. The £56.6 billion cap's lending to small businesses rose by 5% compared to a 3% contraction for the wider market. Furthermore, the bank is undergoing a restructuring which has seen Lloyds dispose of several non-core and international businesses in recent years.

Issue Date: 29 Oct 2013