Lloyds Bank was on Monday forced to suspend its widely heralded £1.75 billion share buyback plan as it faced a last-minute rush of claims for PPI.
The attempt by City watchdog the Financial Conduct Authority to bring an end to one of banking’s biggest ever scandals has seen millions of customers claiming they were missold credit card insurance ahead of the August deadline.
Lloyds, which has already paid out £21 billion over the payment protection insurance farrago, said it would take another charge of between £1.2 billion and £1.8 billion for the month of August.
It received between 600,000 and 800,000 claims a week in August. While Lloyds said the “quality of these complaint volumes remains uncertain”, it believes most are at “a low level”.
Nevertheless, it has put a share buyback programme, one of the few things supporting the shares of a bank whose fortunes are closely tied to the UK economy, on hold.
City analysts think Lloyds should be able to honour its dividend promises, unless too many of the PPI claims turn out to be legitimate.
Last week Virgin Money owner CYBG, Co-op Bank and Royal Bank of Scotland revealed a similar spike in PPI claims.
One analyst described the Lloyds news as “brutal, but unsurprising”. The £1.8 billion figure is double the £900 million charge revealed by RBS.
Under chief executive António Horta- Osório Lloyds has pulled itself back from the brink of bankruptcy, though the shares remain stagnant. Today the stock fell 2% to 49p.
Lloyds said it has decided to “suspend the remainder of the 2019 buyback programme, with £600 million of the up to £1.75 billion programme expected to be unused at mid-September.”
“In line with normal practice, 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.”
That suspended £600 million could be cancelled altogether, experts warn.
The total cost of PPI to Britain’s banks is now close to £50 billion. Personal finance advisers have been advising all bank customers to file a claim.
Economists say the PPI pay-outs have been a huge boost to consumer spending. Some warn that the economy will be hit once they finally stop.
Barclays is the only big bank that hasn’t revealed a spike in PPI claims.
Along with other bank shares, Barclays fell 1% to 138p.
