British banks struggle to put costliest scandal behind them

[LONDON] Britain's biggest banks are poised to set aside as much as 1.2 billion pounds (US$1.8 billion) more in the fourth quarter to compensate customers sold insurance they didn't want or need, with Lloyds Banking Group Plc hit hardest.

Lloyds, the country's largest mortgage lender, will make a 500 million-pound provision, according to the median estimate of five analysts surveyed by Bloomberg News.

The latest charges would bring the total bill for wrongly sold payment-protection insurance to more than 23 billion pounds over the past four years, making it the costliest of all scandals to hit the UK industry since the financial crisis.

"The rate of claims in 2014 is definitely down on 2013, but it's not tailing off at the pace the banks had originally expected," Mike Trippitt, an analyst at Numis Securities Ltd in London, said.

"We've still got some meaningful provisions to come in the fourth quarter and the first half of 2015."

Predictions on PPI provisions for Lloyds range from 300 million pounds by Investec Plc analyst Ian Gordon to 622 million pounds from Chintan Joshi at Nomura International Plc.

Barclays Plc, the UK's second-largest bank by assets, could set aside 291 million pounds, while Royal Bank of Scotland Group Plc is seen making a 179 million-pound provision and HSBC Holdings Plc 140 million pounds, according to Nomura's Joshi. With Lloyds, that's an estimated total provision of 1.2 billion pounds for the banks.

Lloyds Chief Financial Officer George Culmer said in October that the bank would take an additional 600 million-pound provision for PPI in the fourth quarter if claims arrived at the same pace as the previous three months.

Redress for PPI will be "substantially lower" in the middle of 2015, Lloyds said in October, as it largely completes a review of past sales and compensation.

The potential cost comes as Chief Executive Officer Antonio Horta-Osorio, 51, seeks permission from Britain's Prudential Regulation Authority for Lloyds to pay its first dividend since 2008. The London-based lender is scheduled to post full-year earnings on Feb. 27.

Lloyds could report a annual statutory profit for 2014, Deutsche Bank AG analysts Jason Napier and David Lock, who have a buy rating on the shares, wrote in a note to clients last month. That would be the first profit since 2009.

"We expect strong capital build despite another 500 million pounds in PPI provisions, a charge to which beleaguered investors have become somewhat accustomed," the analysts wrote.

Lloyds could post a statutory profit of 1.6 billion pounds, up from a loss of 838 million pounds a year earlier, and announce a one pence dividend, they added.

Lloyds has already set aside 11.3 billion pounds to cover the cost of compensating customers over wrongly sold PPI, the most of any British lender. The UK's four biggest banks set aside 1.5 billion pounds for PPI in the third quarter.

The Financial Conduct Authority said on Friday it's considering a cut-off date for customer complaints that would potentially bring an end to spiraling costs for Britain's largest banks.

The UK's Financial Ombudsman Service said Jan 6. it expects to process about 150,000 new claims this year and that banks would be "dealing with the fallout of PPI for several more years." Santander UK Plc, Britain's second-biggest mortgage lender, took a 30 million-pound PPI provision in fourth-quarter earnings on Tuesday and said that compensation claims will continue for longer than it originally anticipated.

BLOOMBERG