London — Lloyds Banking Group posted a bigger drop than expected in reported profit as the payment protection insurance scandal once again marred its results.
The bank took a £700m PPI charge in the second quarter — the 17th time it has topped up its reserves for customer compensation since 2011 — raising the total cost to more than £18bn.
The lender also had $340m in other conduct charges in the quarter, including costs of a new programme to reimburse fees tied to the handling of mortgage arrears.
The conduct costs overshadowed lower-than-expected loan-impairment costs and a jump in interest income as the bank said consumer credit quality improved.
The shares dropped as much as 3%, the biggest decline in more than a month.
"In the retail business there will always be mistakes made and we will have to redress people," CEO Antonio Horta-Osorio said on a call with reporters.
"We are obviously hopeful and committed that our current business practices will put this legacy behind us and we will go to a more appropriate level."
Pretax profit for the second quarter fell 31% to £1.24bn. Excluding the conduct costs and other exceptional charges, Lloyds reported a pretax profit of £2.41bn, beating the £1.98bn average estimate of five analysts compiled by Bloomberg News.
Years after the bank started paying out compensation to consumers, claims keep flooding in, exceeding the company’s expectations.
The additional provision covers 9,000 claims a week to end-August 2019, the lender said on Thursday.
Chief financial officer George Culmer said he could not rule out another increase to reserves.
Horta-Osorio’s bank has about 97% of its business in the UK, meaning its fortunes are tied to the performance of the British economy as the nation hammers out a divorce from the European Union.
The International Monetary Fund cut the UK’s growth forecast after a disappointing start to the year, while upgrading the outlook for many European countries.
The government sold its last remaining shares in Lloyds in May after almost a decade of ownership — netting an £894m profit in the process — and Horta-Osorio is preparing a new strategy to be unveiled next year outlining how he plans to grow the bank.