THE word “milestone”, like the omnipresent “iconic”, is gratingly overused. But using “milestone” to describe a reinstatement of the dividend at the taxpayer-controlled Lloyds Banking Group after six lean years is appropriate. It is symbolic of the group’s corporate recovery.
Even more supportive of the renewed investment case for the bank is chief executive Antonio Horta-Osorio’s statement that Lloyds’ restored cash generation should allow it to pay 50 per cent of sustained earnings to shareholders over the medium term, usually taken to mean three to five years. Divi momentum should build rapidly.
Robust profitability at both the statutory and underlying levels, the latter stripping out exceptional items such as mis-selling loan insurance and Libor-manipulation, plus the strengthening of key capital ratios backing its loanbook, suggest a bank that has turned the corner.
Lloyds has shed much of a foreign footprint that even at its height was far less than rivals such as Royal Bank of Scotland, HSBC and Barclays.
Over the past three years, Horta-Osorio has made what was always a strongly UK-centric bank even more so, with retail credit, current accounts, mortgages and small business lending at the heart of the proposition.
This does, of course, make it a proxy play for the UK economy, its fortunes inextricably linked to the country’s. If there was a derailment of the recovery, Lloyds would be disproportionately exposed.
However, given the way that economic rebound has taken hold, the danger seems a fairly remote one. Lloyds’ strong trading performance in 2014, following a decent one the year before, sets a conducive backdrop for the government to eventually totally withdraw from the bank’s share register.
Whitehall has already got £8 billion back from the bailout, and taken its holding down from 41 per cent to about 24 per cent. Profits, dividends, capital strength and an understandable, simplified business strategy are attractive to investors, and it would be no surprise if the taxpayer was totally out of Lloyds by some time in the first half of 2016, to be replaced by private investors.
The very fact, or even the gathering prospect, of the bank not having politicians, or UK Financial Investments, the quango that looks after taxpayer stakes in the sector, doing any backseat driving would undoubtedly give a further fillip to private shareholder interest.
Spotlight is turned on Standard Chartered
Standard Chartered does not get the UK media coverage of its rivals in the banking sector because, although it has a London listing, it is seen as an overwhelmingly emerging market player.
But that has all changed with its boardroom shake‑up, installing veteran investment banker Bill Winters as new chief executive, amid a waning group performance in recent times in the face of slowing emerging markets after an earlier period of strong growth.
Standard has plenty of big UK investors interested in what Winters will do on strategy, having taken over from Peter Sands, particularly as there is speculation that a multi-billion-pound rights issue may be somewhere in the works.
Sir John Peace is stepping down as chairman and three non-executive directors are heading out of the door. All change and a rare emergence into the media spotlight.
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