Lloyds Banking Group has warned its costs relating to mis-sold payment protection insurance (PPI) could hit an additional £1.8bn after a rush of claims before the 29 August deadline.
The bank had previously forecast costs of just under £1.1bn, based on a claims rate of 190,000 per week.
However, Lloyds said it received between 600,000 and 800,000 claims per week in August, as customers raced to beat the deadline.
As a result, the company said it expects to suffer a charge of between £1.2bn and £1.8bn in its third quarter statement.
Lloyds said the final figure, which is in addition to the £650m charge reported in the first half of the year, could be higher or lower than the initial estimate.
In a statement issued this morning, Lloyds also said it would suspend its share buyback programme due to the ongoing uncertainty around PPI.
The bank said around £600m of the programme, which could reach up to £1.75bn, was expected to be unused by the middle of September.
“In line with normal practice, the Board will give consideration to the distribution of surplus capital at the year end and continues to target a progressive and sustainable ordinary dividend,” the company said.
Shares in Lloyds slipped almost two per cent in early trading.
“The extra costs do knock the investment case for Lloyds, as they hit return on equity, hamper the bank’s plans to build up its capital buffers and therefore its ability to distribute spare cash once regulators are satisfied that it has sufficient financial ammunition to withstand any future crisis,” said Russ Mould, investment director at AJ Bell.
“The good news is that this should at least see Lloyds through PPI and that no further hits can come from it,” he added.
The revised figures come as the wider UK banking sector grapples with a worse-than-expected rush of PPI complaints.
Royal Bank of Scotland and CYBG have warned that an unprecedented number of claims could lead to costs of £900m and £450m respectively.
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