Lloyds profitability paves way to 2015 dividend

Antonio Horta'Osorio: 'Lloyds will sell a minimum of 25 per cent of TSB in the flotation'. Picture: Getty
Antonio Horta'Osorio: 'Lloyds will sell a minimum of 25 per cent of TSB in the flotation'. Picture: Getty
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LLOYDS Banking Group’s recovery from its taxpayer bailout continued today, as rising profits and capital strength suggested it will win regulatory approval to pay dividends again next May.

The bank, where the UK government has already reduced its stake from 41 per cent to 25 per cent, also revealed it would float off its TSB subsidiary on the stock market within eight weeks.

Speaking of his scheduled talks with the Prudential Regulation Authority later this year on restoring the dividend, Lloyds finance director George Culmer said: “We go into these discussions in a strong position.”

Restarting shareholder payouts is seen as crucial if the government is to sell any of its remaining stake in the bank to small investors rather than just large institutions.

Chirantan Barua, an analyst at Sanford Bernstein, said: “Capital build-up will be basically over by 2015 and from there on assuming 4 per cent loan growth… the bank should be in a position to return about 70 per cent back to shareholders every year.”

The bank stopped paying dividends and was forced to divest more than 600 branches – the restored TSB brand – by the European Union as the price of its £20 billion state bailout during the financial crash.

Antonio Horta-Osorio, group chief executive, said that Lloyds will sell a minimum of 25 per cent of TSB in the flotation, which will include an offer to private investors.

It came as the group posted a 22 per cent rise in underlying pre-tax profits to £1.8 billion in the first three months of this year.

Statutory reported pre-tax profits fell a third to £1.4bn compared with the same quarter of 2013, but mainly due to exceptional items, including the sale of its stake in asset manager St James’s Place.

Horta-Osorio said the bank’s financial performance had been turned around as it reshaped itself into a slimmer, better-capitalised business focused on high street and commercial lending.

He said the lender was “supporting and benefiting from the UK economic recovery”. Bad debts fell sharply, the cost/income ratio improved 2 per cent to 50.7 per cent over the period, and the bank’s core tier one ratio – the capital backing its loanbook – rose to 10.7 per cent in the quarter.

It was 10.3 per cent last December, and Horta-Osorio said last month he expects UK regulators to require banks to hold 11 per cent.

The City was also cheered by Lloyds improving its guidance on its net interest margin – the difference between the interest it charges on loans and pays on deposits – by ten basis points to 2.4 per cent.

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said: “Lloyds is often seen as a proxy for the UK economy, and although they are inextricably linked, both are beginning to prosper after a long period of austerity.”

On the stock market, the bank’s shares closed up 5.5 per cent at 79.5p. That compares with the 61p price registered in the government accounts for the taxpayer to break even on the bailout, which also takes into account money paid by Lloyds to the government in fees.