LONDON – Lloyds Banking Group PLC reported a loss of 2.43 billion pounds ($4 billion) for the first three months of the year after booking a 3.2 billion pounds charge for potential costs of compensating buyers of payment protection plans.
Provisions related to exposure in bailed-out Ireland also contributed to the quarterly loss, reported Thursday, which contrasted with a profit of 204 million pounds a year earlier.
The scale of the provisions was unexpected and sent the company's share price plunging. By early trading in London, Lloyds shares were down 5 percent at 55.1 pence.
The provision for payment protection insurance follows a court decision last month barring the British Bankers Association from appealing to a higher court over compensating customers.
Lloyds said it believes "there are certain circumstances where customer contact and/or redress is appropriate," though it said a number of uncertainties about the final cost.
Other U.K.-listed banks, suffered too, with Royal Bank of Scotland down 1.4 percent and Barclays 1.3 percent lower. Both are also major players in the payment protection market.
The Financial Services Authority has estimated that claims for misselling the insurance coverage could total 4.5 billion pounds.
Lloyds, in which taxpayers hold a 41 percent stake, also said Thursday that its overall income of 4.9 billion pounds was sharply lower down on last year's 6.1 billion pounds.
Ireland's debt crisis also weighed heavy on Lloyds earnings as the company said impairment charges for bad loans rose 200 million pounds to 2.6 billion pounds, half a billion pounds higher than initially expected because of losses in the country.
Thursday's report was the first since Antonio Horta-Osorio took over as chief executive of Lloyds.
Ian Gordon, analyst at BNP Exane Paribas, said the market fears there could be more bad news ahead if Horta-Osorio chooses to take additional one-off charges to rebase the company.
"However, aside from the one-offs, underlying profitability is still very weak indeed," Gordon said. "Lloyds remains a multiyear restructuring story."
Lloyds Banking Group was created during the banking crisis through a hastily arranged rescue of Halifax/Bank of Scotland by Lloyds TSB. Most of the liabilities for payment protection insurance were acquired from HBOS.