LYG Lloyds Banking Group Plc

By Margot Patrick 

LONDON-- Lloyds Banking Group PLC's compensation bill for mis-sold loan insurance rose to GBP13.9 billion ($21.3 billion) on Wednesday after a fresh GBP500 million charge that weighed on third-quarter profit.

The British bank said net profit was GBP690 million, down slightly from GBP693 million a year earlier. Underlying profit, which strips out certain costs and provisions and excludes the TSB unit it floated last year, was down 3% at GBP1.97 billion from GBP2.04 billion.

Shares in Lloyds fell by 4% as analysts said that the results were worse than expected, largely because of a fall in the bank's "other income" line that includes revenue from commercial banking, insurance and noncore assets.

The new provision to compensate customers who were wrongfully sold insurance on loans and credit cards was also higher than some analysts had estimated. Lloyds has borne the brunt of a total sector bill running at around GBP27 billion, after a 2011 court ruling cleared the way for customer rebates.

Lloyds executives on Wednesday said they're waiting to hear whether the Financial Conduct Authority might impose a 2018 deadline on the claims. The said they're also in "wait and see" mode on a separate legal case that could result in a slew of new claims on other commission-based products.

For decades PPI was sold to cover mortgage, auto and other loan payments if the borrower lost a job or fell ill. Many people didn't need the insurance or could actually claim on it.

The bank separately took another GBP100 million charge in the quarter to cover potential claims on other types of products sold through its branch network.

Chief Executive António Horta-Osório said the group has had a good year so far, with underlying profit rising 6% in the first nine months compared with the year earlier. He said the U.K.'s low unemployment levels, increased house prices, higher consumer spending and lower household debt are all providing "a positive backdrop to the group's future prospects."

Mr. Horta-Osório has been selling assets and exiting countries since taking over as CEO in 2011, and is now credited with having gotten Lloyds back on solid footing after a government rescue in the financial crisis. Once a sprawling global organization, the bank's main focus now is lending to British households and businesses.

Reflecting the improved health of the U.K. economy, bad loans fell to GBP157 million in the third quarter, from GBP236 million in the third quarter of 2014. Operating costs were down slightly, at GBP1.92 billion from GBP1.97 billion.

The U.K. government still owns just under 11% of the bank, down from 43% at the peak of the bailout. Ongoing share sales to institutional investors are expected to take the stake lower still, and more than 250,000 people have registered interest in buying Lloyds stock in a planned retail share sale next spring, Chancellor George Osborne said this month.

Write to Margot Patrick at margot.patrick@wsj.com

(END) Dow Jones Newswires

October 28, 2015 05:08 ET (09:08 GMT)

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