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Lloyds hit by more PPI claims

RESULTS: Further PPI claims meant another loss for Lloyds – challenging economic conditions and a sizeable eurozone exposure are also worries for investors
July 26, 2012

A further £1.08bn hit from payment protection insurance claims (PPI) explains Lloyds' half-year loss. Adjust for that, and bad debt charge reductions, and underlying profits increased by £715m to £1.06bn. But, with weak economic prospects and the ongoing eurozone crisis, the shares should be avoided.

IC TIP: Sell at 28.64p

Lloyds' bad debt charge actually fell 42 per cent year-on-year to £3.16bn, helped by chunky reductions in charges at the Irish unit. Despite that, however, and reflecting grim conditions in Ireland, provisions there still represent 28 per cent of Lloyds’ total charge – yet the £12.5bn Irish loan book is dwarfed by the group’s £534bn loan book. The UK retail arm is hardly booming, either. Underlying profit there rose 7 per cent to £1.41bn, driven by a 35 per cent fall in bad debt charges. But underlying income fell 10 per cent amidst weak credit demand.

Lloyd’s net interest margin slipped 19 basis points to 1.93 per cent, reflecting higher wholesale funding costs. Lloyd’s also has a £21.3bn exposure to the eurozone’s five weakest economies – including a chunky £5.6bn exposure to Spain.

Investec Securities expects full-year EPS of 0.3p (2011: 4.1p loss per share).

LLOYDS BANKING GROUP (LLOY)

ORD PRICE:28.64pMARKET VALUE:£20.1bn
TOUCH:28.63-28.65p12-MONTH HIGH:45pLOW: 22p
DIVIDEND YIELD:nilPE RATIO:17
NET ASSET VALUE: 65p 

Half-year to 30 JunPre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
2011-3.25-3.40nil
2012-0.44-1.00nil
% change---