• Lloyds Banking Group: Thirty four months of misery to come!


    According to a report (GOTO: http://www.eadt.co.uk/business/watchdob_sets_june_2019_deadline_for_ppi_compensation_claims_1_4640728) in the East Anglian Daily Times, The Financial Conduct Authority (FCA), 25 The North Colonnade, London E14 5HS has decided that June 2019 will be the deadline after which PPI (Payment Protection Insurance) will no longer be accepted by the banks.

    The banks would have liked a date set before 2018. The news that it is going to be the middle of 2019 will serve only to delight solicitors across the country who are the chief beneficiaries of this.

    The FACT is that relatively few retail customers had a genuine grievance and the vast majority have been settled long ago. One bank, Lloyds has been disproportionately affected by PPI. Whilst this so called “scandal” is allowed to persist Lloyds Bank will not find it’s share price rising much.

    The other ever present storm cloud hovering over Lloyds and other banks is the political cloud. This is of course the fact that politicians have a love hate relationship with profits. Politicians love profits because profits can be taxed. Profits also means no loss. Politicians also hate profits because they either view it as Comrade Corbyn views it as cruel exploitation of oppressed proletariat or as Mrs May views it as vote loosing bad PR.

    The frustration of this situation can be read on the comments thread on the London Stock Exchange website. One shareholder bemoans his situation thus:
    “It’s ridiculous that a bank that is turning a healthy profit and has such a strong balance sheet should be getting hammered disproportionately for any perceived problems that may or may not lie ahead……”

    We would agree with the above comment but would counsel that equity investments must be looked at as long term investments. Until the dead hand of PPI is lifted Lloyds Bank will be unable to realise it’s full potential. When it is the way forward will be to run a good business, make a good profit and pay a good dividend. If at that point the SP is such that the dividend yield is at silly levels such as 7.5 to 8.0% the market has a corrective solution. It is called a sharp rise in the SP.

    Lloyds Bank’s fortunes are very much connected with the UK housing market of course. As a long term equity investment Lloyds Bank is a fairly good bet. Especially at current SP levels.
    NB: Declaration of Interest: The Editor is a Lloyds Bank shareholder.
    UPDATE 2:45PM:

    Shore Capital’s analyst Gary Greenwood commented: “……For example, in its 2015 full year results, Lloyds set aside additional provisions to cover claims until mid-2018, so it is possible that an extra year’s worth of provisioning may now be required. We would not be surprised to see top-ups of a few hundred million pounds, and perhaps as high as one billion pounds, for each of the large UK banks, with Lloyds being the worst affected……”

    Shares in Lloyds, RBS and Barclays were down two percent or more by 1000 GMT.

    Lloyds Bank, which has £2 billion of unused provisions, said it was disappointed the deadline had been pushed back.

    “At this stage our guidance on our provisioning remains,” it said in a statement.

    The PPI policies, designed to protect borrowers in the event of sickness or unemployment, were found to have often been sold to people who would have been ineligible to claim.

    Regulators have had rules for PPI claims in place since 2010 and normally a deadline of three years is set, but surveys showed many people unaware they had bought the product.

    FCA Chief Executive Andrew Bailey stated: “Putting a deadline on PPI complaints will bring the issue to an orderly conclusion in a way that protects both consumers and market integrity. We will ensure that our communications campaign will engage with all those who could be affected, particularly vulnerable consumers.”

    The watchdog also set out the timetable for claims following the so-called Plevin ruling by Britain’s Supreme Court, which suggested there might be additional cause for complaint concerning commissions paid on PPI sales.

    The FCA has said that rules for Plevin type claims would come into force by the end of March 2017, with the cut-off date set for June 2019.

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