António Horta-Osório has been hoping to draw a line under the payment protection insurance scandal ever since he arrived at Lloyds Banking Group (LLOY). Eight years into his tenure – and amid market chatter that he could exit the UK’s largest mortgage provider in the next year – the chief executive swallowed one final £1.8bn provision for the miss-sold products, all but wiping out third quarter profits.
The final charge, at the top of September’s forecast range, was booked to meet what Mr Horta-Osório termed an “unprecedented level of PPI information requests” in August. In addition to a scrapped buyback programme, the final damage now includes a 40 per cent drop in statutory pre-tax profits and a halving in earnings per share for the year to date. The final claims bill stands at more than half Lloyds’ current market capitalisation.
Exclude the latest penalty, and the third quarter underlying return on tangible equity was 14.3 per cent – well above peers but 160 basis points down on the same period in 2018, and hampered by a rise in bad loans. Indeed, the asset quality ratio – of impairments to total lending – rose to 33 basis points following “a single large corporate charge”, possibly due to the collapse of client Thomas Cook.
As well as the usual caveats around economic uncertainty, Lloyds also used the update to flag the retirement of group chairman Lord Blackwell at or before the bank’s 2021 annual general meeting. Chief operating officer Juan Colombás will also step down in July 2020, after nine years with the lender.
Full-year consensus forecasts are for earnings of 7.38p per share, and 7.35p in 2020.
