City watchdog frowns on Lloyds plan to return to making dividend payouts

By GARETH MACKIE
Published on 08/10/2012 00:00

THE City watchdog is understood to have threatened to block plans by Lloyds Banking Group to resume dividend payments amid fears over the future of the eurozone.

Lloyds chief executive Antonio Horta-­Osorio is keen to start returning cash to shareholders when conditions allow, but the Financial Services Authority (FSA) is said to be in favour of the bank preserving its capital to meet tough global rules known as Basel III.

The group is 40 per cent owned by the taxpayer and one of the conditions imposed by the European Commission in return for the state bailout was a restriction on dividend payments. European regulators also forced the sale of 632 high street branches and the Cheltenham & Gloucester mortgage business, which went to the Co-operative Bank for £750 million.

A spokesman for Lloyds said: “We have always said we would like to recommence progressive dividend payments when the financial position of the group and market conditions permit, and after regulatory capital requirements are defined and prudently met. We work productively with all regulators in that respect.”

In August, the group sold £1 billion of investments that it inherited from its takeover of HBOS as part of its drive to return its balance sheet to health. During the first half of the year, the bank sold about £23bn of non-core assets, on top of the £53bn it offloaded last year, as it looks to focus on its core banking operations.

The Basel III rules mean that banks have to hold more capital in reserve to cover loans that could turn bad. The aim is to create a bigger safety net to protect taxpayers from having to bail out banks.