£110m for mis-selling victims

HIGH STREET banking group Lloyds TSB has put aside £110m to cover claims for compensation over endowment mis-selling. In a trading statement, the bank said the extra provision would be made in its 2004 accounts but added that despite the money being set aside, profits would still be 'broadly in line' with the City's expectations.

The additional money comes on top of £150m set aside for endowment compensation in 2003. Lloyds is one of the UK's largest endowment providers. Its main life insurance brands include Scottish Widows and Abbey Life, which was fined ?1m by the Financial Services Authority in 2002.

The endowment industry has been engulfed by a crisis in recent years. Millions of people were sold policies in the Eighties and Nineties on the basis they would increase in value and clear their mortgages.

A combination of high charges and a slump in world stock markets has left many policyholders with a shortfall between the value of the investment and the amount they still owe on their mortgages.

The Financial Ombudsman Service is expected to receive 70,000 endowment mis-selling complaints this year - an increase of 20,000 on last year and 55,000 more than two years ago.

Lloyds declined to put an exact figure on the number of its policyholders still facing endowment shortfalls.

The company assured investors that profits would still be as expected this year. Analysts are expecting the bank to make ?3.33bn, excluding profits from sell-offs, less than the ?3.38bn a year earlier, though that figure included profit contributions from businesses now sold.'The group is on track to make further earnings progress in 2005 and beyond,' said chief executive Eric Daniels.

The bank's shares rose 10&frac14p to 438&frac14p in early trading.

The company also said its bad debts were expected to fall. The charge for doubtful debts as a percentage of average lending for the full year is expected to be lower than the 0.63% for the first half of 2004.

The City is closely watching for reckless lending. The Bank of England today warned that soaring borrowing on credit cards could threaten Britain's financial stability. There have already been warning signals over debt, with a rise in the numbers of people reporting repayment problems to consumer groups. Around six million families are said to be struggling to make credit repayments. High Street banks could face particular problems because a much larger share of their debt portfolio is unsecured borrowing. The Bank says that although it makes up 18% cent of their lending to UK residents, it has been responsible for 93% of write-offs.