Lloyds Bill for Sins Seen Slowing Bid to Sell Shares

The bill keeps rising for Lloyds Banking Group Plc (LLOY)’s misdeeds.

The lender may need to set aside 500 million pounds ($847 million) more to compensate consumers who were wrongly sold insurance on loans, according to four analysts’ estimates compiled by Bloomberg. That charge would come just days after Lloyds’s behavior was called “reprehensible” by Bank of England Governor Mark Carney and it was fined 226 million pounds for manipulating interest rates.

The new provision for payment-protection insurance would be in addition to the 9.8 billion pounds, more than any other British lender, it has already set aside. Barclays Plc said today it took a 900 million-pound charge in the second quarter to cover costs for mis-sold loan insurance, bringing its total bill to 4.9 billion pounds.

As Chief Executive Officer Antonio Horta-Osorio looks to build a case to pay a dividend and return Britain’s largest mortgage lender to full private ownership before next year’s national elections, he will still be digging out of past scandals when he reports first-half earnings before the market opens tomorrow. Costs for selling its TSB Banking Group Plc consumer unit may also weigh on statutory earnings, analysts at Deutsche Bank AG, led by Jason Napier, who has a buy recommendation on Lloyds’s shares, wrote in a note to clients.

Photographer: Jason Alden/Bloomberg

As Lloyds Banking Group Plc Chief Executive Officer Antonio Horta-Osorio looks to build a case to pay a dividend and return Britain’s largest mortgage lender to full private ownership before next year’s national elections, he will still be digging out of past scandals when he reports first-half earnings before the market opens tomorrow. Close

As Lloyds Banking Group Plc Chief Executive Officer Antonio Horta-Osorio looks to build... Read More

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Photographer: Jason Alden/Bloomberg

As Lloyds Banking Group Plc Chief Executive Officer Antonio Horta-Osorio looks to build a case to pay a dividend and return Britain’s largest mortgage lender to full private ownership before next year’s national elections, he will still be digging out of past scandals when he reports first-half earnings before the market opens tomorrow.

SFO Review

“You would have thought by now the taxpayer’s stake in Lloyds probably would have been placed,” said Simon Willis, an analyst at Daniel Stewart Securities Plc in London. “There’s a continuing series of supposed one-off charges” that is slowing that process, he said.

U.K. prosecutors are reviewing whether traders’ manipulation of the BBA Sterling Repo Rate constituted criminal conduct, the Serious Fraud Office said on July 28. The U.K. Financial Conduct Authority earlier this year gave the SFO information about its findings on Lloyds and repo-related manipulation, which the agency is reviewing as part of a wider Libor-rigging investigation, said a person with knowledge of the issue.

Lloyds may report a 25 percent increase in underlying pretax profit to about 3.6 billion pounds for the six months through June 30, according to the average estimate of six analysts’ surveyed by Bloomberg. Revenue will decline 3 percent to 9.1 billion pounds, according to the survey.

Shares Down

The bank, still 25 percent owned by the U.K. after receiving a bailout of more than 20 billion pounds, will be facing comparisons with the Royal Bank of Scotland Group Plc (RBS), the largest government-owned bank. Edinburgh-based RBS said July 25 that first-half profit almost doubled as impairment charges fell. The shares surged the most in more than four years on that day.

Lloyds’s shares, which at 75.9 pence are above the British government’s 61 pence break-even price, have declined 2.8 percent this year. That contrasts with RBS rising 6.8 percent, making it the only major British lender to see gains this year.

“The management is going to do whatever is necessary to clean the books and their act to make sure the sale can progress further,” Guy de Blonay, a London-based fund manager at Jupiter Asset Management Ltd., said in an interview.

The government in March sold a 4.2 billion-pound stake in London-based Lloyds to institutional investors, offering shares at 75.5 pence apiece, after it sold a 3.3 billion-pound stake at 75 pence last September.

Dividend Plans

Lloyds has said it plans to apply to the Bank of England in the second half of the year for permission to resume dividend payments, suspended since its bailout. A bank spokesman declined to comment on the earnings report or future dividends.

“They’re going to have a very long, hard look at conduct risk before signing off,” said Mike Trippitt, an analyst at Numis Securities Ltd. who has a buy recommendation on the stock. A dividend at Lloyds would put “a bit of juice in the price,” of the shares, he said.

Lloyds isn’t ready for a full return to the private sector, said Pat McFadden, a Labour Party member of the Treasury Committee.

“I don’t think the job is complete,” he said in an interview. “The most important thing about return to private sector is it’s done with a total focus on what’s best for the public interest and for the wider economy and not any politically motivated timetable.”

To contact the reporter on this story: Richard Partington in London at rpartington@bloomberg.net

To contact the editors responsible for this story: Simone Meier at smeier@bloomberg.net Steve Bailey, Jon Menon

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