By Matt Scuffham
LONDON (Reuters) - Lloyds Banking Group reported weaker than expected third-quarter results on Wednesday, a setback for Britain's finance ministry which is planning to return the bank to full private ownership next year.
Lloyds, Europe's second-biggest bank by market value, also set aside another 500 million pounds ($765 million) to compensate customers mis-sold loan insurance, bringing its total compensation bill to nearly 14 billion pounds, more than double that of any other bank.
Lloyds was rescued with a 20.5 billion pound taxpayer-funded bailout during the 2007-09 financial crisis, leaving the state holding 43 percent. It has since reduced its holding to less than 11 percent, raising over 15 billion pounds.
The government is planning to sell at least 2 billion pounds worth of shares in Lloyds next spring to return the bank to full private ownership.
"The big picture is still of a recovering bank in a strong position in a growing economy," said Henderson Global Investors' head of global equities Matthew Beesley. "It could be argued that today's modest reset nicely lowers expectations ahead of this offering, providing an attractive entry point for investors."
More From This Section
Lloyds shares, which rose last week to a two-month high, were down 4.5 percent at 73.9 pence by 0950 GMT, only marginally above the 73.6p price the government paid.
Lloyds said underlying pretax profit fell to 2 billion pounds from 2.2 billion a year ago. Analysts polled by Reuters had expected the result would be unchanged from last year.
Total income fell 4 percent to 4.2 billion pounds, also below forecasts, as the bank said the performance of its commercial banking division was hit by tougher trading conditions and income was lower in its insurance business.
Lloyds' bill for compensating customers mis-sold payment protection insurance (PPI) rose to 13.9 billion pounds. The policies, designed to protect borrowers in the event of sickness or unemployment, were found to have often been sold to people who would have been ineligible to claim.
Britain's financial regulator said in October it intended to set a 2018 deadline for people to claim compensation, a decision seen as positive for Lloyds, but Finance Director George Culmer said the deadline should be brought forward.
"We think two years is excessive. We think that a shorter time bar will actually get people to act more quickly and get receipt of their money more quickly," Culmer said.
Lloyds also set aside another 100 million pounds to cover potential claims relating to other products sold by staff.
(Additional reporting by Sinead Cruise; Editing by Greg Mahlich and David Holmes)