Finance

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

Elaine He oversees Bloomberg Gadfly's data visualization work in Europe and also pursues her own columns combining business and markets coverage. Before joining Bloomberg, she was a graphics editor at the Wall Street Journal and the New York Times.

The costliest scandal in British banking has a long tail.

Protection Money
Banks have paid out £25 billion to compensate customers who were wrongly sold loan insurance
Source: Financial Conduct Authority

Lloyds Banking Group Plc, the country's biggest mortgage lender, added another 1 billion pounds to the compensation it expects to pay after it wrongly sold customers insurance that didn't cover them or would never pay out.

Wednesday's provision brings the amount the lender has set aside for the payment-protection insurance scandal to 17 billion pounds -- more than any other bank. So far, the scandal has cost Britain's four biggest banks 33 billion pounds ($40 billion).

Charge Ahead
Britain's four biggest banks have set aside more than £33 billion for PPI redress
Source: Bloomberg

While CFO George Culmer was at pains to stress this would be the last "big" provision the bank expects to take, it's worth noting the full impact of the scandal is still playing out.

The real long-term cost of PPI will be a reduction in the money banks can make from cross-selling products to their customers, something Gadfly noted in May.

Caught in the Crossfire
Lloyds has collected less revenue from fees and commissions in recent years
Source: Bloomberg

Lloyds's latest figures back that up: the bank's non-interest income as a proportion of total revenue has in recent years declined to about 33 percent from 38 percent.

This suggests that if banks want to grow revenue in the future, they will have to focus on lending rather than cross-selling things such as insurance. But at a time when interest rates are at record lows, profitable lending is hard to achieve. Add the threat of a Brexit-induced economic slowdown, and it's likely the pressure to cut costs will persist.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Lionel Laurent in London at llaurent2@bloomberg.net
Elaine He in London at ehe36@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net