Lloyds investors get special payout despite profits fall

Bank of Scotland's parent saw profits fall as it set aside more funds to deal with mis-sold PPI. Picture: John Devlin
Bank of Scotland's parent saw profits fall as it set aside more funds to deal with mis-sold PPI. Picture: John Devlin
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Shares in Lloyds Banking Group leapt almost 14 per cent yesterday after it handed a £400 million special dividend to investors despite profits falling after an extra £2.1 billion charge for mis-selling loan insurance.

The move came as the bank, where the UK government recently delayed a retail offer of part of its remaining 9 per cent stake because of volatility in banking shares, awarded chief executive Antonio Horta-Osorio a deferred shares bonus worth £449,000.

Horta-Osorio, who also secured a 6 per cent rise in his salary to £1.13 million, also appeared to commit himself to the bank until 2017 after joining in 2011 and bringing the lender back to health.

He said a three-year strategic plan had been presented to the board at the end of 2014 and “I’m committed to seeing the plan going through”.

Lloyds said the new payment protection insurance (PPI) provision left headline pre-tax profits for last year 11 per cent lower at £1.6bn. Underlying profits were up 5 per cent at £8.1bn.

The bank cheered shareholders with a total dividend for 2015 of 2.25p, plus a largely unexpected special divi of 0.5p – worth some £2bn overall.

“That was a surprise on the upside,” one analyst said, while Horta-Osorio said further possible capital returns to investors through special divis or share buybacks were not ruled out.

The massive fourth-quarter PPI provision takes Lloyds’ total bill for the mis-selling scandal – the biggest in British financial history – to £16bn.

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Despite global macro-ecomic headwinds, Horta-Osorio said he was “quite positive” about the outlook for a UK economy, which had grown above 2 per cent for three consecutive years and was not overly exposed to slowing emerging economies such as China and Brazil.

He added that Lloyds’ UK-centric business model,

overwhelmingly based on high street and small business lending, also made it more resilient than most to “external shocks” or “black swan” events.

The bank has 95 per cent of its assets in the UK, and is only in six countries now compared with 30 five years ago. Lloyds said that it handled one in four mortgages to first-time buyers in 2015, while its lending to small and medium-sized businesses (SMEs) rose 5 per cent.

Horta-Osorio deflected questions about the bank’s position on any Brexit vote, saying it had yet to be discussed at board level and was “a matter for the British people”.

However, he said that operationally Lloyds has “begun reviewing” the possibility of Britain leaving the European Union. “We always plan for multiple scenarios,” he added.

Market strategist Richard Hunter said: “Lloyds has provided a bright spot within a notoriously difficult sector, with a set of results underlining the swift progress it is making in an effort to return to former glories.”

Lloyds shares closed up 13.6 per cent, or 8.4p, at 70.64p.