1st May 2014 14:37
LONDON (Alliance News) - Lloyds Banking Group PLC Thursday said it would float at least a quarter of TSB by the end of June, as it reported better underlying earnings for the first quarter thanks to higher net interest income and a lack of further payment protection insurance provisions.
The company also reiterated that it expects to apply to regulators in the second-half of this year to restart dividends payments, a major step in its eventual return to the private sector after it was bailed out by the UK government during the financial crisis. Chief Financial Officer George Culmer told journalists Lloyds hopes to pay a dividend in respect of the full-year.
In a statement, Lloyds said its first-quarter pretax profit fell to GBP1.37 billion, from GBP2.04 billion a year earlier when results were boosted by gains on the sale of government securities totalling GBP776.0 million.
However, its underlying profit, which excludes a number of items related to amortisation of intangible assets acquired from HBOS and other costs including preparing TSB for flotation, increased to GBP1.80 billion, up from GBP1.48 billion profit a year earlier.
The bank said its improved profitability helped to strengthen its balance sheet, with its common equity tier 1 ratio increasing to 10.7%, from 10.3% at the end of 2013 and its Basel III leverage ratio rising by 0.7 percentage points to 4.5%.
"We made good progress in the first quarter, benefiting from our simple, low risk, UK focused retail and commercial banking business model. We provided further support to the UK economic recovery while delivering better underlying profitability and improved returns for shareholders from a stronger balance sheet," Chief Executive António Horta-Osório said in a statement.
Lloyds upgraded its net interest margin guidance for the full-year by about 10 basis points to 2.40%, excluding the disposal of some 630 branches under TSB.
Net interest income - the amount it earns from interest-bearing assets minus the cost of servicing loans, mortgages and investments - increased to GBP2.72 billion, compared with GBP457.0 million a year earlier, boosted by healthier margins from improved deposit pricing and lower funding costs partly offset by pressure on asset prices.
But total income net of insurance claims - which includes net fee and commission income, net trading income, and insurance premium income on top of net interest income - fell to GBP4.63 billion, from GBP5.90 billion, amid a smaller run-off portfolio and a series of business disposals.
Operating expenses fell to GBP2.91 billion, from GBP3.00 billion, as it simplified its structure. Impairments, or bad loans, fell to GBP350.0 million from GBP859.0 million. Crucially, no further provisions were made for payment protection insurance.
Lloyds said GBP2.28 billion of its total GBP9.83 billion provision remained unused at the end of the first-quarter. However, CFO Culmer told journalists he'd "never say never" on PPI, declining to draw a line under the provisions.
Although Lloyds required a state bailout in the midst of the financial crisis after its disastrous acquisition of HBOS, its recovery has been quicker than that of fellow bailed-out bank Royal Bank of Scotland Group PLC. The UK government has been able to reduce its stake in Lloyds to just 24.9% with sales of two tranches of shares since last September.
Lloyds is selling TSB as a condition of the bailout in a disposal mandated by the European Commission. Lloyds has already spent GBP1.64 billion on the TSB build and dual running costs, including GBP172.0 million in the first-quarter.
Culmer said the offer will include a retail component.
Lloyds Banking Group shares were up 5.1% at 79.19 pence Thursday afternoon, the biggest gain on the FTSE 100.
By Samuel Agini; [email protected]; @samuelagini
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