LLOYDS Banking Group has strengthened its hand in negotiations to resume paying dividends in the second half after unveiling a one-third rise in underlying interim profits.
Finance director George Culmer said the bank would ask the UK’s financial regulator for permission to start paying “modest” dividends again after a six-year gap since it was bailed out by the taxpayer in the financial crash.
It came as Lloyds revealed that it was riding the country’s economic recovery to boost profits to £3.8 billion in the first six months of this year from £2.9bn in the same period a year earlier. “Yes, I do think they [the numbers] strengthen our hand,” Culmer said, adding: “The things that matter are being able to demonstrate a statutory profit and a strong capital position. These half-year results show both of those.”
Despite a raft of one-off items, including an additional £600 million hit for payment protection insurance (PPI) mis-selling, Lloyds made a statutory pre-tax profit of £863m. This was down from £2.1bn in the same period of 2013.
There was also a £226m provision for this week’s revelations on rate-rigging, which included its manipulation of the Bank of England financial life-support scheme during the crash.
Group chief executive Antonio Horta-Osorio said he expected economic growth of at least 3 per cent this year and next, and that, as the most UK-centric of the big banks, Lloyds’ future and the performance of the economy were “inextricably linked”.
Bad debts in the period fell 58 per cent, while Horta-Osorio said the group was seeing increasing business investment – the next step in a gathering economic recovery.
The bank said it expected full-year statutory pre-tax profit to be significantly ahead of the first half, and its net interest margin – the difference between the interest the bank lends at and what it pays to savers – to be about 2.45 per cent for the full year. It was 2.01 per cent a year ago.
Horta-Osorio said a three-year strategic plan to 2014 involving major cost savings, thousands of job reductions and withdrawal from many countries was complete, and would be replaced by a new plan covering 2015 to 2017 to be unveiled in November.
However, he refused to be drawn on whether a previous commitment by Lloyds to have no net branch closures would continue over the next three years, saying there had been “exponential” growth in the number of customers using internet and mobile phone to do transactions. “The world is more and more digital,” Horta-Osorio noted.
Meanwhile, TSB’s profit in the first six months of the year fell 17 per cent from the second half of 2013 after it incurred far higher costs after being spun out onto the stock market by Lloyds last month.
TSB boss Paul Pester said the group made a profit of £78.6m, down from £94.6m in the previous six months. Pester said he was confident that the lender would achieve a double-digit return on equity within five years, but that costs were £62m higher than the previous half-year as it no longer benefited from the economies of scale that Lloyds has.
Lloyds sold a 35 per cent stake in TSB, and has eventually to divest it entirely to meet EU terms for the parent’s state bailout.