Lloyds share price: Lender expected to set aside extra £2bn for PPI

Lloyds Banking Group (LON:LLOY) could set another £2 billion for mis-sold payment protection insurance (PPI), Barclays has said. The analysts argue that the extra PPI charges could raise questions about the bailed-out lender’s potential for capital distribution.

Lloyds’ share price fell deep into the red in yesterday’s session, shedding 1.94 percent to close at 64.19p. The shares have lost about 13 percent over the past year.

Analysts at Barclays hiked their estimates for Lloyds’ fourth-quarter provisions for mis-sold PPI from £800 million to £2 billion yesterday, which they expect would result in full-year statutory earnings per share of 0.5p. The analysts added that this raised questions about the bailed-out lender’s dividend potential.

“Although an additional significant PPI charge could hamper near-term prospects for capital distribution, we see this as more of a timing issue than anything else,” the analysts were quoted as saying in a note.

Jefferies meanwhile is more upbeat on Lloyds’ dividend prospects and expects the UK bank to grow its payout to shareholders to 4.7p per share by next year. Jefferies analyst Joseph Dickerson was quoted as commenting yesterday that Lloyds’ dividend growth will be “driven by a strong capital base and improving earnings quality”. He added that Lloyds is expected to “achieve 16 percent return on required equity by 2017’ and ‘this combined with £3.5 billion of excess capital, generates a price target of 101p”.

Dickerson, however, cautioned that the amount of excess capital is likely to be dictated by the size of the group’s PPI mis-selling compensation, which the analyst also sees at £2 billion for the fourth quarter.

The analyst comments come after bailed-out peer Royal Bank of Scotland (LON:RBS) surprised the market last week by unveiling a string of ‘clean-up’ charges, including an extra £500 million provision for mis-sold PPI. Lloyds is due to update investors on its fourth-quarter and full-year performance on February 25.

As of 07:51 GMT, Tuesday, 02 February, Lloyds Banking Group share price is 64.19p.