Lloyds bank's div­i­dend sweet­ens profit miss

The Pak Banker - - FRONT PAGE -

LON­DON: Lloyds Bank­ing Group re­warded in­vestors with a sur­prise 2 bil­lion pound pay­out on Thurs­day, un­der­ly­ing its in­tent to be the big­gest div­i­dend payer among Bri­tain's banks and its re­cov­ery af­ter a state bailout. Shares in Lloyds rose nearly 10 per­cent as share­hold­ers were re­as­sured by its abil­ity to boost cap­i­tal and in­crease div­i­dends in the face of a slug­gish econ­omy and record low in­ter­est rates. De­spite weaker-thanex­pected fourth quar­ter prof­its of 1.6 bil­lion pounds ($2.2 bil­lion), Lloyds said it would pay a spe­cial div­i­dend of 0.5 pence and an or­di­nary div­i­dend of 2.25 pence a share.

Lloyds, once a dar­ling of the FTSE in­dex for its pay­outs to share­hold­ers, of­fered its first div­i­dend in more than six years last year, part of its re­cov­ery from a 20.5 bil­lion pound bailout by the Bri­tish govern­ment dur­ing the fi­nan­cial cri­sis.

The bank said it had in­creased full-year un­der­ly­ing prof­its by 5 per­cent to 8.1 bil­lion pounds, ahead of an­a­lysts' fore­casts of around 6.4 bil­lion pounds, ac­cord­ing to Thom­son Reuters data. "It's a real tran­si­tion from cap­i­tal build to cap­i­tal re­turn," Ian Gor­don, an­a­lyst at In­vestec Se­cu­ri­ties in Lon­don, said, while an­a­lysts at Bar­clays raised their 2016 es­ti­mates on the stock, cit­ing con­fi­dence in its strong div­i­dend prospects.

The bank's com­mon equity tier 1 ra­tio, a mea­sure of fi­nan­cial strength, stood at 13 per­cent af­ter the pay­out.

It was not all good news for in­vestors, how­ever, with missed cost tar­gets and yet more pro­vi­sions for its role in Bri­tain's pay­ment pro­tec­tion in­sur­ance (PPI) mis-sell­ing scan­dal. Lloyds de­layed its goal of re­duc­ing its cost-in­come ra­tio to 45 per­cent, from 2017 to 2019, while a re­turn on equity tar­get of 13.5 to 15 per­cent was pushed out to 2018. It also cut its bonus pool to 353.7 mil­lion pounds from 369.5 mil­lion.

The bank set aside 2.1 bil­lion pounds in the fourth quar­ter to com­pen­sate cus­tomers for mis-sell­ing loan in­sur­ance, more than it is pay­ing out in the spe­cial div­i­dend, bring­ing the to­tal it has had to pay out to 16 bil­lion pounds.

Lloyds said this should cover ex­pected claims through to mid-2018, the fi­nan­cial reg­u­la­tor's likely dead­line for claims which have forced Bri­tish banks to set aside some 30 bil­lion pounds, the costli­est scan­dal of its kind in UK bank­ing his­tory.

The poli­cies were sup­posed to pro­tect bor­row­ers against sick­ness or re­dun­dancy, but were of­ten sold to those who would have been in­el­i­gi­ble to claim. The govern­ment, which held 43 per­cent of Lloyds af­ter its res­cue, has since cut its stake to around 9 per­cent.

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