Lloyds Banking Group took a larger-than expected £1.4 billion charge for improperly sold loan insurance, threatening to undermine dividend plans.

The latest provision was £400 million higher than what analysts at Sanford C. Bernstein and Morgan Stanley estimated, pushing the total set aside to £13.4 billion pounds, a record among British lenders.

First-half pretax profit rose 38 per cent to £1.2 billion from a year ago, missing analyst estimates of £1.9 billion compiled by the company.

Chief executive officer Antonio Horta-Osorio, 51, is considering special payouts or share buybacks as the government prepares to sell a 15 per cent stake in the lender.

While the chief executive has cut jobs and sold assets to return Britain’s largest mortgage lender to profit, his plans may be undermined by increasing costs for wrongly sold payment protection insurance.

Lloyds will pay an interim dividend of 0.75 pence a share, it said in a statement on Friday, when reporting first-half earnings.

That’s unchanged from its first payout to shareholders since taking a bailout in the financial crisis.

The shares fell 0.6 per cent to 85.49 pence at 9:53am in London.

They have gained about 13 per cent this year, giving the bank a market value of £61 billion.

Unlike Royal Bank of Scotland, which hasn’t paid a dividend since its bailout, Lloyds is still generating more capital than regulators require it to hold against assets, bolstered by lower costs and falling bad-loan charges.

Bloomberg