Lloyds Banking Group plunged back into the red as it set aside a further £750 million for payment protection insurance claims.
The new provision means the state-backed bank’s compensation pot for the PPI mis-selling scandal has topped £8 billion.
The group, which is 33% owned by the taxpayer, recorded statutory pre-tax losses of £440m in the third quarter of the year, compared with a £151m loss in the same period last year.
Underlying earnings nearly doubled to £1.52bn but the bank had to increase the money set aside for PPI as claims continued to flow in.
The bottom line was further weighed down by losses from sales of assets during a period when it disposed of a German life insurance business as well as operations in Australia.
The results were the first since the Treasury began the process of returning its stake in Lloyds to the private sector, selling a 6% chunk for £3.2bn to institutional investors last month.
Lloyds said £1.7bn of the £8bn of PPI cash was unused, indicating that £6.3 billion had already been spent on the compensation programme.
In the third quarter, £706m was spent a higher-than-expected figure that included £161m for administration while the average rate of upheld complaints has been rising since the start of the year.
However, the overall number of complaints continues to fall and averaged 11,000 per week in the quarter, down from 12,500 in the previous three-month period.
Despite the losses, Lloyds hailed the strong underlying improvement in performance and said it was in talks with regulators about restarting dividend payments for the first time since being bailed out by the Government in 2008.
Chief executive Antonio Horta-Osorio said: “We are well on our way to becoming a better, simpler, low-risk bank, which delivers the products our customers need and the strong performance and sustainable returns our shareholders expect.”
Lloyds, which includes Halifax Bank of Scotland, swung out of the red earlier this year with half-year profits of £2.1bn.
Since then it has spun off more than 600 branches under the revived TSB brand, with plans to float the business on the stock market next year.
However, the flotation, which goes under the name of Project Verde, represented another major hit to Lloyds’ balance sheet in the quarter with “simplification and Verde” costs put at £408m.
Meanwhile, Lloyds chief executive Antonio Horta-Osorio is on course to land a share-price-linked bonus currently worth around £2.3 million within
weeks.
A bonus scheme announced earlier this year will see him qualify for three million shares if the stock price remains above 73.6p for 30 trading days. This represents the average price paid by the Government when the bank was rescued.
The shares have been trading above this level since October 9, and if they remain so at the close on November 20 the CEO will qualify for the bonus.
It means on paper he will receive £2.3m-worth of stock based on the share price of 77.9p following the third-quarter results.
However, Mr Horta-Osorio would not be able to sell the shares until 2018.