Lloyds Banking Group failed to impress investors and analysts with its first quarter results indicating profit of £288 million before tax. Investors and stakeholders were not impressed by the fact that the bank had to pay an extra sum of £375 million to the victims of mis-selling of PPI policies. However, there is no denying that the 2012 first quarter performance is much better than performance in the first quarter of the previous year. The bank had posted a loss of £3.5 billion in the first quarter of the previous year. The management is attributing the less than impressive performance to the poor state of the UK economy.
A cash strapped government is tracking the performance of the Lloyds group keenly because it has a 40% stake in the organization that has been financed using taxpayers money. The group was at pains to clarify that the extra provisioning towards PPI compensation was done because of an increase in the number of complaints received from customers. The bank is walking a tight rope as extra provisioning affects profits while reducing compensation amount affects the reputation and goodwill in the market. Barclays too announced and increase in the provision towards missold PPI policies by a sum of £300 million.
Lloyds has set aside some of £3.6 billion to compensate victims of mis-sold PPI policies. Banks and financial institutions mis-sold the policies by selling it to those who were not eligible for protection. In many cases, people who have not obtained loans were asked to pay for these policies without their formal consent. Mis-selling was widespread and almost all high street banks have been involved in the same.
The policy is traditionally designed to help a certain class of borrowers continue repayment even if they suffer fluctuations in income. As mis-selling came out in the open, consumer groups stepped in and demand compensation from banks and financial institutions for the victims.