Leon Neal/Agence France-Presse — Getty ImagesAntónio Horta-Osório, chief executive of the Lloyds Banking Group.LONDON — The Lloyds Banking Group, partly owned by the British government, reported on Friday a loss for 2011 after it had to compensate some customers who were wrongly sold insurance.
Lloyds, based in London, said its net loss for last year was £2.8 billion ($4.4 billion), compared with a £320 million loss for 2010. The loss resulted from a £3.2 billion provision the bank made last August after it inappropriately sold payment protection insurance, which covered customers if they were laid off or became ill. Other British banks, including Barclays and Royal Bank of Scotland, also have had to pay similar charges.
On a conference call with reporters, Antonio Horta-Osório, the bank’s chief executive, said the outlook for this year remained tough. He said the bank’s income for 2012 would be lower than last year because of deteriorating economic conditions in Britain and elsewhere in Europe, and because financing costs remained high.
Despite the difficult economic conditions, Lloyds benefited from rising customer deposits and a reduction in its use of the wholesale funding markets. Its pre-tax profit for last three months of the year totaled £937 million, compared with a £276 million loss for the same period in 2010.
In early afternoon trading in London, Lloyds’ shares had fallen 1.6 percent. Stock in the British bank has dropped 42 percent over the last 12 months.
Lloyds, Britain’s largest retail bank, is the latest European bank to report poor results. On Thursday, the Royal Bank of Scotland, which is majority-owned by the British government, reported a £2 billion loss for 2011, partly resulting from large haircuts on the value of its Greek bond holdings.
Lloyds, which is 41 percent owned by British taxpayers following a bailout, reduced its so-called noncore assets by £53 billion to £141 billion last year, as it looks to reduce costs and pare its balance sheet. It expects to cut noncore assets to less than £90 billion by 2014, according to a company statement.
Mr. Horta-Osório is overseeing a major overhaul of the bank, including the proposed sale of 632 of its branches across Britain to a local rival, the Co-Operative Bank. As part of this plan, Lloyds expects to lay off 15,000 workers by 2014, including 3,700 job cuts that took place last year.
The bank said bonuses for last year totaled £375 million, a 30 percent reduction compared with 2010. Cash bonuses at Lloyds have been capped at £2,000. In January, Mr. Horta-Osório said he would turn down his bonus for last year, which could have reached up to £2.4 million, after he took a leave of absence from the struggling financial firm.
Last Monday, Lloyds also became the first bank in Britain to demand repayment of past bonuses because of losses that turned up later.
The bonus clawback of about £2 million applies to five former or current executive directors, including a former chief executive, and eight other managers. Eric Daniels, who left the bank as chief executive last year, would have to give up 40 percent of the share bonus he was awarded for 2010, or about £580,000, Lloyds said.
Lloyds said it decided to retain 5 percent to 40 percent of the deferred share bonuses it awarded to the 13 former and current executives directors and managers for 2010, because had the provision related to the selling of the payment protection insurance been taken then, “the bonus pool would have been lower and individual bonus awards would also have been lower.”