LYG Lloyds Banking Group Plc

By Max Colchester 

LONDON-- Lloyds Banking Group PLC set aside another GBP1 billion ($1.22 billion) to compensate customers who were sold insurance products they didn't need, taking a big bite out of its third-quarter profit, as the U.K. lender tried to draw a line under the yearslong scandal.

The U.K.'s biggest lender said its profit after tax fell 68% to GBP219 million ($266.4 million) in the three months to the end of September from a year earlier, and kept its dividend outlook unchanged. Revenue rose 1% to GBP4.28 billion.

The bank has now set aside more than GBP17 billion to compensate customers who were wrongly sold payment protection insurance. PPI was widely sold alongside an assortment of financial products, including loans and credit cards, to cover customers' repayments should they fall sick or lose their job.

Lloyds Chief Financial Officer George Culmer said the amount announced Wednesday is "the last big PPI provision that we expect to take."

Shares in the bank were down 2% Wednesday morning.

U.K. regulators have proposed to cap the compensation for PPI in 2019, later than Lloyds thought.

The bank bolstered its capital cushion by reclassifying GBP20 billion of gilts--U.K. government bonds--on its balance sheet as available for sale, as opposed to holding them to maturity. Analysts at Citigroup said the move was "questionable." Mr. Culmer said the capital uplift "was as good as any other capital benefit."

Chief Executive António Horta-Osório said the U.K.'s vote to leave the European Union has so far hasn't resulted in "significant changes" in consumer behavior. Some business have deferred investment plans but "overall it is too early to assess any longer-term trends," Mr. Horta-Osório said.

Lloyds's CEO urged the British government to borrow funds and launch a wide-scale infrastructure investment program to ensure the economy rides out the existing uncertainty after the Brexit vote.

Faced with low interest rates, the bank continued to cut costs. "There is more to come," said Mr. Culmer. The bank is also continuing to pull out of buy-to-let mortgages and the London housing market amid cooling house prices.

The U.K. government announced earlier this month that it would restart the privatization of Lloyds by drip selling its 9.1% stake into the market.

Mr. Horta-Osório sought to allay speculation that he would soon quit the bank to look for another job as the government's sell-down nears completion. "I am very happy at Lloyds, I like the bank...I like our teams here," he said.

Write to Max Colchester at max.colchester@wsj.com

(END) Dow Jones Newswires

October 26, 2016 06:23 ET (10:23 GMT)

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