Bailed-out bank shrugs off effects of Brexit vote, although slip in revenue and rise in bad debts drag down underlying profits
Lloyds Banking Group’s profits have more than doubled as the bailed-out bank shrugged off the Brexit vote and avoided further hefty charges for mis-selling payment protection insurance (PPI).
Lloyds’ profits of £4.2bn are the highest for a decade and the bank’s shares rose 4% after it promised a dividend of 3.05p a share – including a 0.5p one-off special payout.
The government was expected to cut its holding in the bank, which stood at 43% after the 2008 bailout and is on course to fall below 4% in the coming days.
The bonus pool increased by 11% while Lloyds’ chief executive, António Horta-Osório, was paid £5.5m for 2016. His basic salary is increasing to £1.2m, the second stage of pay rise from £1m two years ago. A total of 58 Lloyds’ bankers were paid more than £1m.
The Portuguese banker has rattled off the changes since he took the helm in March 2011 that have allowed the government to cut its stake.
Horta-Osório insisted he was “very happy” to stay at the bank and promised a new strategy – his third three-year plan – later in 2017, with a focus on costs. “The job is never done,” he said.
The bank’s chairman, Lord Blackwell, said: “There’s no sense of complacency here ... There is a still a lot to do. Our objective is to make Lloyds into a great British institution.”
As well as owning Halifax and Bank of Scotland (HBOS), the group owns 200,000 cars through its leasing business, provides financing for car deals through Black Horse – where lending increased 20% during the year – and is in the process of buying the MBNA credit card business.
Profits, which were just £1.6bn a year ago, have been weighed down in recent years by the £50bn cost of bad lending at HBOS – the bank Lloyds took over during the 2008 financial crisis – and £17bn of charges to cover PPI compensation.
Last year the PPI charge was £1bn, down from £4bn a year ago.
However, the bank set aside a further £1bn during the year for other compensation payouts, including a new £475m bill for mis-selling packaged bank accounts and to compensate mortgage customers whose arrears were miscalculated. There was no provision for about 100 customers affected by the HBOS Reading fraud – for which two former HBOS bankers were jailed.
The provisions meant the bank sliced 19% off its bonus pool – taking it to £393m, still 11% higher than last year.
With the provisions and other one-off items stripped out, underlying profits were down as revenue slipped and bad debts rose 14%.
Even so Horta-Osório was pleased with the performance. “Given our UK focus, our performance is inextricably linked to the health of the UK economy, which has been more resilient than the market expected post-referendum, with GDP growth of 2% in 2016. The UK’s decision to leave the European Union means the exact nature of our relationship with Europe going forward remains unclear and the economic outlook is uncertain,” he said.
His pay fell from £8.7m a year ago, because of a reduced value of a three-year pay deal. His annual bonus rose from £850,000 to £1.2m and he could be handed shares worth about £3.5m under a new three-year scheme.
Lloyds’ shares plunged to 48p after the referendum result in July and have since risen 40%, but they remain below the 73.6p average price during the £20bn bailout. Their 4% rise after the 2016 results were announced took the price to 69p.
Gary Greenwood, banks analyst at Shore Capital, said the bank was increasing its guidance for profits – measured by net interest margin – for this year. “Guidance for 2017 would appear to be better than implied by consensus market estimates, notably in respect of the net interest margin but also on the impairment ratio and capital generation,” he said.
But there was some scepticism about the bank’s ability to achieve these goals. Sandy Chen at the brokers Cenkos said: “We don’t see much to revise our long-held scepticism about Lloyds’ ability to achieve its lofty long-term targets.”
It is not clear what impact any new strategy will have on jobs: more than 50,000 job losses have been announced since the HBOS rescue.