Lloyds Earnings Hammered by £1 billion PPI Charge

Lloyds Banking Group swung to a third-quarter loss after setting aside another £1bn to compensate customers who were mis-sold payment protection insurance.

Britain's biggest retail bank posted a pre-tax loss of £144m for the three months ending in September, the state-owned lender said in a statement Thursday, while its net loss for the period narrowed to £361m from £501m in the same quarter last year. On a so-called statutory basis, the loss was tabbed at £583m.

"Disappointingly, legacy issues continue to affect our results and a provision of £2,075 million relating to Payment Protection Insurance business, of which £1,000 million was in the third quarter, was the primary driver behind the statutory loss of £583m for the first nine months of 2012," said CEO Antonio Horta-Osorio.

Lloyds did report a stronger-than-expected measure of its bad loan exposure, which shrank 40 percent from last year to £1.351bn as its sales of underperforming assets accelerated to £38bn in the three-month period. Guidance for the full-year impairment figure was also reduced to £6bn.

Barclays shares rose around 3.5 percent in early London trading to change hands at 235 pence each. The shares have risen around 29.3 percent so far this year.

The mis-selling of payment protection insurance, or PPI, has to date cost Britain's biggest banks around £10bn, with Lloyds setting aside more than half of that total - £5.3bn - as part of its compensation agreement with regulators. Barclays told investors Wednesday it was setting aside a further £700m against its third-quarter earnings, brining its total to £2bn, as part of the payback scheme.

Lloyd's net interest margin figures, however, continue to be a concern for investors. The ratio - which measures the difference between its funding costs and the revenue it receives on the loans it has made - fell to 1.93 percent from 2.05 percent in the third quarter of 2011.

The bank warned that its future earnings potential could be harmed by the ongoing debt crisis in the Eurozone, but kept its modest outlook for the domestic economy unchanged.

"While the UK economic environment remains subdued and vulnerable to developments in the Eurozone, our economic outlook remains unchanged, with the most likely scenario being a flat economic performance in 2012, and a modest, below-trend recovery in 2013," Horta-Osorio said.