On 8 November, S&P revised its outlook on Lloyds TSB Bank PLC (Lloyds) to negative from stable.
This follows Lloyds' 3Q12 results announcement, which included an additional £1bn provision in relation to payment protection insurance (PPI), among other exceptional items. PPI was mis-sold in the UK and complaints about it mishandled on an industrial scale for well over a decade. Banks now face legal action and fines by the FSA.
For Lloyds, PPI provisions year-to-date now total about £2.1bn, which has contributed to Lloyds reporting a statutory loss before tax of £583m for 9M12. S&P are of the view that provisions for further material PPI charges could constrain Lloyds' capital and earnings.
Lloyds is not the only UK bank to suffer from elevated PPI charges. The cumulative industry provision to date exceeds £13bn. Lloyds has stated that it has paid out £3.7bn of its £5.3bn provisions and that a number of uncertainties remain as to the eventual cost.