The extra charge pushed Lloyds, which is 40% owned by taxpayers, to a £144 million loss in the third quarter.
Stripping out the cost of PPI, though, the bank doubled its underlying profit to a better-than-expected £840 million in the three months to September 30.
The gains came after Lloyds slashed bad debts and narrowed losses from its non-core businesses.
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Michael Fallon has received reassurances from his US counterpart that security ties with Britain will "endure" following a vote for Brexit.
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