Lloyds makes £3.9bn loss after PPI hit

Lloyds Banking Group has reported a statutory loss of £3.9bn in the first nine months of 2011 after being hit with a £3.2bn provision for payment protection insurance (PPI) claims.

The group, part owned by the UK taxpayer, said the PPI provision, combined with a charge for integration, simplification and EU mandated retail business disposal costs of £1.1bn, as well as negative insurance volatility of £737m, caused the loss.

Excluding PPI and the other charges, Lloyds said profit before tax decreased by 30% to £1.7bn, compared to £2.5bn in 2010.

Lloyds said the results had been impacted by a number of "temporary volatility effects" as well as the absence of liability management gains made the previous year.

It said excluding these one-off effects, combined businesses profit before tax was down 6% at £1.9bn.

The group had better news on the impairment front, where losses fell 22% to £7.4bn.

However, the group said the improvement was "more than offset by reductions in income, reflecting the subdued UK economic environment, and risk and asset reductions to further strengthen the balance sheet, along with higher wholesale funding costs."

Last week the group's chief executive António Horta-Osório took a leave of absence from his position suffering with extreme fatigue.

Interim group chief executive and group finance director, Tim Tookey, said the group was on track to deliver returns to shareholders despite recent economic weakness.

"Although the UK economic environment has weakened in the third quarter, the flexibility in our strategic plan has allowed us to further improve our customer propositions, continue the reduction in our risk profile, strengthen our balance sheet and reduce costs," he said.

"Over time,we believe our strategy will realise the full potential of our organisation for customers and shareholders."