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LBG, 41-percent owned by the taxpayer, said it was setting aside £3.2 billion after Britain's banks last month lost a high court appeal against moves to tighten regulation of a controversial payments insurance.
LBG on Thursday said it was setting aside £3.2 billion to cover payouts to customers who were mis-sold payment protection insurance (PPI).
The bank, which on Thursday also reported a first-quarter pretax loss of £3.4 billion, said its losses "principally" reflected the £3.2 billion PPI repayment provisions.