Sunday, December 10News That Matters

Lloyds to repay £300m in mortgage arrears

Lloyds Banking Group is to repay nearly £300m to about 600,000 customers over failings in the way it applied mortgage arrears policies, in the latest scandal to hit the UK’s biggest high street lender.

Sky News has learnt that Lloyds will unveil a customer contact and remediation programme on Thursday alongside half-year results that will also be blighted by a bigger-than-expected provision for mis-selling payment protection insurance (PPI).

Sources said that the redress scheme would cost Lloyds just under £300m, with more than £50m also set aside to cover administrative costs.

The issue is understood to centre on the way Lloyds applied policies relating to financial difficulty assessments, leading to some customers being charged in error between 2009 and 2016.

One insider said that affected customers, who will receive an average of £350 in repaid fees and interest, would be contacted proactively by Lloyds and that they needed to take no action themselves.

The vast majority of the bill has already been provided for in previous results announcements, but one insider said Lloyds would have to top up its provisions by tens of millions of pounds on Thursday.

The Financial Conduct Authority (FCA), which is investigating Lloyds over its treatment of customers in mortgage arrears, is understood to have been consulted on the bank’s plan.

The existence of an enforcement probe by the City watchdog was revealed last year and reiterated in Lloyds’ latest annual report, published in February, which said: “On 26 May 2016, the Group was informed that an enforcement team at the FCA had commenced an investigation in connection with the group’s mortgage arrears handling activities.

“This investigation is ongoing and it is currently not possible to make a reliable assessment of the liability, if any, that may result from the investigation.”

The progress of the FCA inquiry is unclear, although it could see Lloyds being hit with a hefty fine if it concludes that customers were treated unfairly.

While not all customers were treated inconsistently, the bank is said to have decided to repay every customer who fell behind with their mortgage repayments during the relevant period.

The fact that the errors were taking place over such a protracted period and until relatively recently could have consequences for the bonuses of senior managers, according to one City pay consultant.

The mortgage arrears remediation programme is the latest in a string of conduct failings to hit Lloyds, which has already had to set aside more than £17bn for PPI mis-selling claims.

People close to the bank said it was likely to have to add well over £500m to that bill on Thursday, reinforcing its status as by far the worst-exposed lender to the PPI scandal.

Nevertheless, Lloyds’ half-year results are expected to reflect a continuing strong performance by the underlying business, despite the continuing spectre of ultra-low interest rates.

In May, the Government sold the last of a shareholding in Lloyds that had once stood at 43%, with Philip Hammond, the Chancellor, hailing a modest profit for UK taxpayers.

The disposal represented a milestone in Britain’s efforts to shed the toxic legacy of the 2008 financial crisis, when banks including Lloyds were bailed out with tens of billions of pounds in capital injections – and even larger sums in behind-the-scenes central bank support.

Lloyds has since resumed dividend payments, and underlined its renewed confidence last year with a deal to acquire MBNA, the giant credit card business.

Antonio Horta-Osorio Lloyds
Image:Antonio Horta-Osorio is the bank’s chief executive

The sale of the Government’s remaining stake also triggered speculation about the future of Antonio Horta-Osorio, Lloyds’ chief executive.

He has been linked with the looming vacancy at the top of HSBC Holdings, where Stuart Gulliver, the chief executive, has said he will step down in 2018.

Mr Horta-Osorio has, however, said that he has no plans to leave, and appeared to quash rumours about his departure earlier this month by unveiling a shake-up of the bank’s senior ranks.

The reorganisation came months before his next three-year strategy update, which he is due to announce towards the end of the year.

Thursday’s half-year results are likely to offer further endorsement of his strategy, although they will also provide a stark reminder of some of the conduct issues which have haunted the industry in recent years.

In addition to its vast PPI bill, Lloyds has set aside £100m to deal with the fallout from a fraud at the Reading branch of HBOS, which has seen six people jailed and compensation claims

Victims of the fraud included Noel Edmonds, the television presenter, who this week increased his compensation claim against the bank to £300m.

Lloyds merged with the stricken HBOS – then the UK’s biggest mortgage lender – but the deal initially proved to be disastrous because of the scale of bad loans on the combined group’s balance sheet.

The bank declined to comment on Wednesday.

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