Lloyds profit slumps amid latest PPI mis-selling hit

Shares in Lloyds Banking Group fell more than 3% early on Wednesday (26 October), after the banking giant said it has set aside an additional £1bn ($1.2bn) to cover compensation for mis-sold payment protection insurance (PPI).

The provision means the bank has spent a combined £17bn to tackle PPI mis-selling, making it the lender that has been worst hit by the scandal. The latest PPI-related hit came as the bank announced a 15% year-on-year slump in pre-tax profit in the third quarter, to £811m, compared with analysts' forecast for a profit of £883m.

Stripping out one-off items such as PPI provision, underlying profits in the three months to the end of September were 3% lower than in the corresponding period last year at £1.9bn

However, the FTSE 100-listed lender, which is still 9% owned by the taxpayers, recorded a 1% year-on-year increase in income to £4.3bn and its capital reserves rose to 13.4% from 13% at the end of the previous quarter.

Shares in the banking giant have lost around a quarter of their value following Britain's European Union referendum and the bank said the volatility following the Brexit vote has had a drastic impact on its pension schemes.

Lloyds' defined benefit plans went from having a £430m surplus at the end of June to a £740m net deficit within three months, although the bank said it was too early to determine any longer term trends.

"We don't see any significant change in activity from consumers following Brexit [...] on the business side, we have already said at half one that we saw some businesses have deferred elements of their investment plans and borrowing [...] it is not a very high amount," added group chief executive António Horta-Osório.

"But it's too early to assess any longer term trends".

At the end of July, Lloyds unveiled plans to close 200 branches and cull an extra 3,000 jobs after it warned of a slowdown in the wake of Britain's decision to leave the EU. The lender is targeting a further £400m in cost savings by the end of next year, in addition to the plan it announced in 2014, which included cutting 9,000 jobs in a bid to save £1bn by the end of 2017.