25th Feb 2016 12:10
LONDON (Alliance News) - Lloyds Banking Group PLC on Thursday lifted its annual dividend and said it will return surplus capital through a special payment to shareholders, even as the lender's profit took a dent from what it hopes will be a final charge for the payment protection insurance mis-selling scandal.
With high hopes for dividend growth ahead of the results, Lloyds duly delivered. The bank lifted its ordinary dividend for 2015 to 2.25p from 0.75p the prior year, equating to a GBP1.60 billion payment. The special dividend of 0.5 pence will add another GBP356.4 million to shareholders' pockets.
Pretax profit fell by 6.7% to GBP1.64 billion in 2015. On the other hand, underlying profit, which excludes asset sales and the cost of PPI provisions, rose by 4.6% to GBP8.11 billion. The bank cut its bonus pool to GBP353.7 million from GBP369.5 million the prior year, as "conduct-related provisions... impacted negatively on profitability and shareholder returns".
Chief Executive Officer António Horta-Osório received his first pay rise since 2011, with his basic salary going up 6% to GBP1.1 million. Other executive directors received an increase of 2%. The increase over and above that level given to Horta-Osório will be delivered in the form of shares, which he will be unable to sell until the UK government sells its remaining stake in the bank. The CEO's total remuneration in 2015 was cut 24% to GBP8.8 million, mainly due to continued struggles with PPI handling.
The difference between the two measures of profit was largely due to the PPI scandal, which has now cost the bank a total of GBP16.0 billion, of which 25% came in 2015. The final quarter of the year included a PPI charge of GBP2.1 billion, with the provision coming as UK regulators look to set a 2018 deadline on claims. The bank should now have enough money set aside to cover all future PPI complaints through to mid-2018, Chief Financial Officer George Culmer said.
Other conduct provisions amounted to GBP837.0 million, with GBP302.0 million recognised in the fourth quarter in relation to packaged bank accounts and "other product rectifications" in retail, insurance and commercial banking areas.
Net interest income, generated by subtracting interest payments to savers from interests received on loans, rose by 5% to GBP11.48 billion as margins improved to 2.63% from 2.40%. Lloyds expects its net interest margin to improve to around 2.70% in 2016. There was pressure on "other income", generated through fees and commissions, for example, which fell by 4.8% to GBP6.16 billion
Costs were stable, edging up to GBP9.08 billion from GBP9.04 billion, while impairment charges for bad loans fell by about half to GBP568.0 million.
Still state-backed after its GBP20.5 billion rescue in the 2008-09 financial crisis, Lloyds is awaiting the sale of the the UK government's remaining 9.2% stake. Weak sentiment towards financial stocks since the start of 2016 has delayed UK Chancellor George Osborne's plan to sell the last of the taxpayer's shares.
Investor concerns about slowing economic growth and bank profitability in a lower-for-longer interest rate environment have seen shares in Lloyds fall below the 73.6p level at which the government breaks even. The stock was up 9.8% at 68.26p on Thursday.
On Thursday, CEO Horta-Osório said that Lloyds is able to "respond effectively" to low interest rates and market volatility, supported by the strength of its balance sheet. He said the bank can handle uncertainties such as the UK's upcoming referendum on whether to leave the European Union, which has hit the strength of the pound.
Lloyds' common equity tier one ratio - a key measure of financial strength and an indicator of whether a bank can afford to pay dividends - improved to 13.0% from 12.8% over the course of 2015. Were Lloyds to pay no dividends for 2015, the bank's CET1 ratio would stand at 13.9%.
The bank guided that it will generate about two percentage points of CET1 capital per year, before dividends.
By Samuel Agini; [email protected]; @samuelagini
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