Lloyds Banking Group suffered a pre-tax loss of £570m in 2012 as a result of it having to set aside nearly £4bn to pay claims relating to the misselling of financial products, among other costs.
However, today’s results represent a significant improvement on the £3.5bn loss the year before.
The bank reveals a £3.5bn provision to compensate customers for the misselling of payment protection insurance, bringing the total set aside by the bank to £6.8bn. It also set aside £400m in 2012 to pay claims to customers who were missold interest rate hedging products.
Other costs which contributed to the loss include £570m towards project Verde, which requires the group to dispose of around 632 branches, and £676m as a result of its simplification programme, which was put in place to achieve long-term cost savings.
Lloyds’ income fell from £21bn in 2011 to £18.3bn but this was offset by the fact it had reduced the amount of money it had to set aside for loan impairments from £9.8bn in 2011 to £5.7bn in 2012.The group now has a group tier 1 ratio of 12 per cent, up 1.2 per cent from the end of 2011.
Lloyds says it anticipates the direct channel will become increasingly important as a result of “orphan” clients created as a result of the retail distribution review.
The results say: “We continue to focus on retention of customers within our legacy LP&I books, including opportunities to migrate customers with maturing products into new investment propositions. These customers provide 34 per cent of our total underlying profit. Whilst we have invested in the systems and processes to help independent financial advisers through RDR, we anticipate exits from the market and the direct channel will be increasingly important for the ‘orphan’ customers created.”
The group suffered consecutive falls in gross mortgage lending, down 6.4 per cent from £28bn in 2011 and down 12.6 per cent on the £30bn advanced in 2010.
This means the group had an 18.3 per cent share of the UK mortgage market at the end of 2012, based on the Council of Mortgage Lenders’ assumption that there was a total of £142.6bn advanced to customers in 2012. Its market share has steadily slipped over the past two years, from 22 per cent in 2010 to 20 per cent last year.
Lloyds says it helped 55,000 first-time buyers onto the property ladder in 2012, equivalent to one in every four FTBs.
In total, 2.4 per cent of the bank’s mortgage book is in arrears, up slightly from 2.3 per cent at the end of 2011. The stock of repossessions decreased to 2,438 cases at the end of December, down from 3,054 the year before.
The average loan-to-value of Lloyds’ mortgage book increased to 56.4 per cent at 31 December 2012, from 55.9 per cent a year earlier. For new business, the group reported an average LTV of 62.6 per cent at the end of last year, up from 62.1 per cent in 2011.
Lloyds has around 11.7 per cent of its mortgage book – worth around £37.8bn as at 31 December 2012 – with an LTV of more than 100 per cent. This has fallen slightly from 12 per cent, worth £39.7bn a year earlier.
Furthermore, Lloyds has today announced it will pay group chief executive Antonio Horta-Osario a bonus of £1.5m in shares for the group’s performance in 2012, but this will be deferred until 2018. The bank’s total bonus pool for 2012 has been set at £365m, a 3 per cent fall on 2011’s pool size. The average value of bonus for employees is £3,900 in 2012.
Horta-Osario says: “We are creating a business of which customers and colleagues can be proud, and which I am confident will help Britain prosper and delivering strong, stable returns to shareholders.”