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Lloyds’ costs for mortgage arrears issues hit £640m

Lloyds Banking Group has allotted an additional £245m to address issues in its mortgage arrears handling, bringing the total for 2017 up to £642m.

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The extra provision was revealed in the bank’s full results for 2017, published today. The results state that, following a review of the bank’s arrears handling activities, it has sought to improve its customer service and is in the process of reimbursing mortgage arrears fees through a redress scheme to 590,000 affected customers.

 

It comes after customers were charged fees, including litigation fees, when falling into mortgage arrears. A Financial Conduct Authority (FCA) investigation began on 26 May 2016 into the matter and is still ongoing.

 

In 2017, Lloyds provided a further, separate, £245m relating to complaints over alleged mis-selling of packaged bank accounts, raising the total amount provided by the bank to £750m. It added several risks and uncertainties remain in particular with respect to future volumes.

 

In total across the group, conduct provisions amounted to £865m to cover these arrears, packaged bank accounts and other legacy issues.

 

Following a Northern Ireland High Court’s ruling in favour of borrowers in relation to three residential mortgage test cases, concerning the group’s practice in recalculation of contractual monthly instalments of customers in arrears, the FCA has published guidance on the treatment of customers with mortgage payment shortfalls.

 

The guidance covers remediation for mortgage customers who may have been affected by the way firms calculate their monthly mortgage instalments. Lloyds said it is now determining its approach to implementing the guidance and will contact affected customers during 2018.

 

The bank also confirmed it is undertaking a review into cases from the former HBOS Impaired Assets office based in Reading. This review follows the conclusion of a criminal trial in which several individuals, including two former HBOS employees, were convicted of conspiracy to corrupt, fraudulent trading and associated money laundering offences which occurred prior to the acquisition of HBOS by the Lloyds Banking Group in 2009.

 

The group has set aside £100m in the year to 31 December 2017 and is in the process of paying compensation to the victims of the fraud for economic losses as well as what it described as “ex-gratia payments” and awards for distress and inconvenience. The review is ongoing, and on February 12 2018, the group had made offers to 57 customers, which represents more than 80 percent of the customers in the review.

 

Away from legal issues, Lloyds confirmed it implemented IFRS 9 Financial Instruments on January 1 2018. The adoption of the new standard resulted in a reduction in shareholders’ equity of £1.2bn largely reflecting an increase in impairment provisions of £1.3bn.

 

The bank’s top line figures show the pre-tax profit for 2017 was £5.3bn, 24 percent higher than a year earlier, and the bank’s highest profit since 2006.

 

The government sold its last shares in Lloyds in May 2017, eight years after pumping in £20bn to save it.

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