Friday 31 July 2015 2:58 pm

Lloyds share price falls as profits come in below expectations while total PPI bill surges

Shares in Lloyds were down 2.21 per cent this afternoon to 83.81p per share after profits missed expectations and it announced a £1.4bn provision to cover the cost of mis-selling payment protection insurance (PPI).

The figures

The state-backed bank said pre-tax profit rose 38 per cent to £1.19bn in the six months to the end of June, from £863m during the same period last year: nevertheless it came in below analysts' expectations for £1.8bn.

Lloyds was also forced to set aside £1.4bn to cover the cost of mis-selling payment protection insurance, bringing its total bill for PPI to £13.4bn.

However the bank said its improved profitability meant that it could offer an interim dividend payment of 0.75p per share..

Why it's interesting

Last month Lloyds was fined a record £117m by the Financial Conduct Authority (FCA) over mis-sold PPI, but the City hadn't anticipated the size of the 1.4bn provision, which Investec described as "even-worse-than-expected".

Investors will be going over today's results with a fine tooth comb after chancellor George Osborne said he will sell the government's remaining £11.5bn holding in Lloyds over the coming year – and it is good news. Lloyds also said that it wants to return more cash to shareholders via a share buyback or a special dividend.

It comes as the government has been busily whittling down its stake in the bank, which is currently less than 15 per cent, and by doing so it's recouped billions for the Treasury's coffers.

What Lloyds said

"Today’s results demonstrate the strong progress we have made in the first half of the year," Horta-Osório said.

"The improvement in our profitability and capital position has enabled the group to announce an interim dividend payment of 0.75 pence per share to our shareholders."

"We remain focused on our aim to become the best bank for customers and shareholders while at the same time supporting the UK economy."