Lloyds sets aside £3.2bn for PPI claims

Part-nationalised lender Lloyds Banking Group unveiled underlying profits before tax for the half year that were ahead of some estimates, but the £3.2bn provision for potential claims relating to the mis-selling of payment protection insurance (PPI) put a big hole in the bottom line.Underlying profit before tax (excluding liability management and enhanced capital notes (ECN) effects totalling £851m) increased 36% to £1,340m in the first six months of 2011, from £988m in the first half of 2010.Underlying total income, net of insurance claims, declined by 12% to £10,414m, due to non-core asset reduction and subdued lending markets. Excluding losses on disposal of treasury assets of £670m, underlying total income fell 7%, principally as a result of a 6% decrease in average interest-earning assets.On a statutory basis, the group reported a loss before tax of £3,251m, which included a non-recurring provision for PPI contact and redress costs of £3,200m and a charge for integration costs of £642m (first half of 2010: £804m).The group achieved a further reduction in the impairment charge in the first half of 2011, which, at £5,422m, was 17% lower than in the first half of 2010, with a deterioration in International (principally Ireland) more than offset by improvements elsewhere in the group, particularly in Wholesale, chief executive António Horta-Osório said.Guidance for full-year performance remains unchanged from the figures outlined in the group's strategic review announcement at the end of June."Given the series of rapid, focused actions we have taken since March, and the progress made in the half-year in strengthening our balance sheet, we are well positioned to realise over time the full potential of our organisation, brands and capabilities, and to achieve strong, stable and sustainable returns for shareholders," claimed Horta-Osório.--jh