After barely passing the European Banking Authority’s 2014 stress tests, Lloyds TSB finds itself another $1.5 billion (£ 900 million) in the hole after being charged to compensate customers mis-sold loan insurance.
Tuesday’s announcement brings the total cost to cover for mis-selling payment protection insurance (PPI) to £11.3 billion pounds, significantly more than any other bank and approximately half of the total industry wide bill.
In a Reuters report, Lloyds TSB Finance Director George Culmer said he could not rule out further increases, and complaints about PPI had risen by “about 2 or 3 percent” in the third quarter, although they were still down 18 percent on the year.
The United Kingdom government does own 25% of the bank, and following gaining the title of the worst performing British bank in the European wide stress tests, will face heightened pressure during the Bank of England (BoE) administered stress test scheduled for December.
Lloyd’s TSB performance will certainly prove vital considering the BoE test will determine the company’s ability to pay its first dividend since it was rescued by the government during the Great Recession to the tune of £20.5 billion.
"Whilst we do not see failure as having capital-raising implications, we no longer expect Lloyds to pay a 2014 dividend," said Macquarie analyst Ed Firth.
Culmer remains confident that Lloyds will pass the domestic BoE test, thus allowing them to pay a ‘modest’ dividend for the year.
"The discussions look at earnings, they look at capital and they look at stress tests. We consider ourselves to be in a good position with regards to those three criteria as we go into those discussions," Culmer said.
