Lloyds bank's dividend sweetens profit miss
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.