The Press and Journal (Aberdeen and Aberdeenshire)
Lloyds reports big profit slump following PPI bill
Banking: Group also warns of hit to 2020 results due to tough competition
Bank of Scotland’s owner has revealed a 26% slump in annual profits after a £2.5 billion bill for payment protection insurance (PPI).
Lloyds Banking Group (LBG), which also owns Lloyds Bank Halifax, warned of a hit to 2020 results amid tough competition in the mortgage market.
The banking giant lowered two key targets of profitability for this year.
Retail margins are under pressure because of the low interest rates and intense price competition affecting players across the sector.
“In2019thegroup hascontinuedto make significant strategic progress”
LBG said pre-tax profits slumped to £4.39bn in 2019, from £5.96bn the year before, with underlying profits down by 7% at £7.5bn.
Its annual report – published alongside the results – showed chief executive Antonio HortaOsorio’s pay package for 2019 fell by 28% to £4.73 million due to the steep drop in profits, while the wider staff bonus pool was cut by 33% to £310.1m.
The group also outlined plans to reduce Mr Horta-Osorio’s maximum total payout, including controversial pension payments, by 29% for 2020 and beyond as part of an executive remuneration overhaul.
Mr Horta-Osorio – who has faced criticism over his pay in the past year – will see his pension drop to 15% of basic salary, down sharply from 33%, as part of efforts to narrow the gap between executive pay and the wider workforce.
The chief executive, whose base salary rose by £25,000, or 2%, last year to £1.269m, insisted the results for 2019 were “resilient”.
Mr Horta-Osorio added: “In 2019 the group has continued to make significant strategic progress, while delivering solid financial results in a challenging external market.
“Throughout 2019, UK economic performance has remained resilient in the face of significant political and economic uncertainty, supported by record employment, low interest rates and rising real wages. Although uncertainty remains, given the ongoing negotiation of international trade agreements there is now a clearer sense of direction and some signs of an improving outlook.”
The group expects to report a return on tangible equity of between 12% and 13% in 2020, against previous targets of 14% to 15%.
Its net interest margin – another measure of profitability – is also likely to drop this year as challenging retail banking conditions take their toll.
LBG delivered some cheer for investors, however, with a 5% rise in the dividend payout.
The group said it did not set aside any further PPI charges in the final three months of 2019 after a mammoth £1.8bn bill in the third quarter following a rush of claims ahead of the August deadline.
It said it took “some comfort” from this that its current provisions will be enough, allowing it to draw a line under the costly saga.
Mr Horta-Osorio insisted he was committed to seeing through a threeyear strategy, despite speculation it has been stepping up its chief executive succession planning.