5 May 2011
The decision of Lloyds Banking Group’s new chief executive António Horta-Osório to set aside £3.2bn for compensating customers who were ripped off by HBOS and Lloyds TSB in the longstanding PPI racket has set the cat among the pigeons for other bankers. Here are some excerpts from Pratley’s piece:-
Well done, António Horta-Osório. Payment protection insurance was a disgraceful racket. … [by making this £3.2bn provision] the new boss admitted that his bank was caught fairly and squarely. That’s the right stance. If the rest of the industry can’t see the overwhelming moral case for backdating compensation, then we can dismiss as fluff those boasts about a new era of “trust and values” (copyright Marcus Agius at Barclays).
He has, however, inflicted a minor heart attack on his shareholders – who include taxpayers. Lloyds’ provision for PPI compensation and costs is £3.2bn, about twice the City’s expectation. Lloyds and HBOS were aggressive floggers of these policies, accounting for a 35%-40% share, and may have sustained their antics longer than others. Even so, £3.2bn is hard to square with the Financial Services Authority’s estimate of £4.5bn for the entire industry…
No firm conclusions can be drawn until the other banks cough up their own provisions. But the natural reading is that PPI at Lloyds (and maybe the others) was even smellier than previously thought. If so, the £1.45m bonus for outgoing chief executive Eric Daniels also stinks.
It remains to be seen whether Horta-Osório, a smooth former Goldman Sachs and Santander executive, who took over from the disastrous Daniels as Lloyds CEO on March 1 2011, will also see the light and “bow to the law” elsewhere in the Lloyds Banking Group empire. For example will the Portuguese-born banker have the decency to admit wrongdoing and to compensate the victims in the alleged £1bn Bank of Scotland Reading fraud and the alleged HBOS/Vavasseur fraud?