Nine months have gone by in 2011, and Lloyds has just reported that they have taken a loss through this portion of the year. This is not something that they can weather without making any changes. It is not a slight loss that can just be written off and ignored.

Lloyds PPI Compensation Claims

All in all, they have reported losing as much as £3.9bn. Taxes have not yet been factored into the equation, but a good comparison can still be made to last year to show the vast difference that has come about in 2011. The previous earnings for the same period last year were £2bn. That is a swing of £5.9bn, and it is not swinging in the way that Lloyds would like.

The main reason for this loss was the settling of a large number of PPI claims. This Payment Protection Insurance was sold to people incorrectly for a number of reasons. In some cases, the true cost of the policy was not told to those who were purchasing it. In other cases, people were told that they had to purchase the insurance, that it was mandatory and required, even though this was not the case. Court rulings have stated that Lloyds has to settle with all of the people who purchased the insurance under either one of these pretences.

As can be imagined, settling all of these cases was not easy to do at one time. While people had been paying into the policies for years, Lloyds had to pay the money back over a much shorter period of time. This meant that they had to spend much more than they were taking in. This has led to the loss. The only upside of this is that it indicates a rise in the future. With all of the claims now settled and the PPI problems behind them, those who are running the bank can concentrate on making money once again. The losses will slow and hopefully even stop now that there are no more claims left to be paid.

Another reason for this loss was just the economic climate. Businesses are still not rebounding in the way that has been desired for quite some time now. This means that less money is changing hands. It also means that consumers are not making as much as they used to. Many of them are without jobs. This has made it hard for banks to make any money since there is simply less money in the system. If the economy manages to regain its former levels, Lloyds could make up what they have lost.

Furthermore, there have been some changes in the personnel in the higher levels of the bank’s organizational structure. This may or may not have had anything to do with the loss; those currently running the bank have stated that nothing has changed in the way that business has been done, and that the loss is both a coincidence and a result of other factors. Still, there is no way to separate these two events from one another.

One change is that Antonio Horta-Osorio, who is the chief executive, has left for medical reasons. When these are resolved, he fully plans to return to his job. He has not entirely left Lloyds, but has just taken a leave of absence that he feels is necessary at this time. Into his roll has stepped Tim Tookey. He will be fulfilling the tasks of the chief executive on an interim basis only. He has also put in his resignation, so he will soon be leaving after all of this is over. He will be leaving in February, though things are expected to be back to normal before the year is over. Before Mr. Tookey leaves, Mr. Horta-Osorio should have returned to his position.

There has also been some talk that banks themselves are responsible for the problem. Since the economy has been struggling, banks are not willing to take any risks. They are very hesitant to give loans to companies that could pose such a risk. These companies can offer great rewards when they succeed, but banks are willing to take lower gains from companies that are so established that they know they will not fail. Unfortunately, this has kept small companies from forming and helping to restart the economy.

As can be seen, there are many factors working against Lloyds at the present time. All of these have come together to force the company to lose money for the first nine months of the year. The PPI claims have now all be settled, however, and the management situation should be sorted out quickly. While Lloyds will probably not be able to recoup all that has been lost by the end of the year, things look to be in good shape going into the following year.



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Tim Capper

Bringing you financial news and information in plain english for Maple Leaf Financial. My aim is to help readers understand these often complex financial instruments.