Profits send Lloyds shares near break-even level

Shares in Lloyds Banking Group approached a two-year high today on the back of forecast-beating quarterly results, sending them closer to the level at which the state could break even if it sold its stake.

Antonio HortaOsorio is in line for a £1.5m bonus dependent on a sale of a share of the governments stake. Picture: Getty

The bank, which was last week dealt a blow after the collapse of its planned £750 million sale of 632 “Project Verde” branches to the Co-operative, posted an underlying profit of £1.5 billion for the first three months of the year, up from £497m a year ago and well ahead of the £1.1bn forecast by analysts.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said the surge in profits had been driven by a lack of large provisions for the mis-selling of payment protection insurance, which had weighed on previous results.

He added: “There remain, however, some drags on the stock, such as the distraction of the sale or flotation of part of its branch network, the lack of reference to a return to the dividend and, of course, the overhang of the government stake.”

It is understood that the government is keen to start reducing its 39 per cent stake in Lloyds ahead of the 2015 general election, but a spokesman for the Treasury said no dates have been set.

He said: “We haven’t put a timetable on anything and we won’t at this stage. We want Lloyds to continue to make the progress it’s making, becoming a strong and sustainable bank.”

Lloyds’ shares gained as much as 6.9 per cent and hit a high of 57.2p, before ending the day at 54.33p. The UK government considers a sale at 61p would allow it to break even, having pumped £20.5bn into the group to keep it afloat during the 2008 financial crisis.

Chief executive Antonio Horta-Osorio said he was focused on improving the bank’s performance and no talks about a share sale had been held with the government or UK Financial Investments (UKFI), which manages the state’s holding.

He said: “It’s management’s job to operationally prepare the bank as well as possible in order for shareholders to decide about privatisation.

“It is ultimately up to UKFI and the Treasury to decide on that and we have not been holding discussions with them in that regard.”

Despite the lender racking up a £570m loss last year, Horta-Osorio is line for a £1.5m shares award if the government sells at least a third of its stake for more than 61p a share, or if the price stays above 73.6p – the average price paid by the state during the bailout – for a given time.

Jonathan Jackson, head of equities at Killik & Co, said: “Lloyds has made significant progress on its three- to five-year strategic plan announced in June 2011, achieving many of the targets early.

“The balance sheet and capital position has been strengthened, the business portfolio has been reshaped and de-risked, with the group significantly simplified.”

As part of the group’s strategy, Lloyds is cutting its international presence from 30 countries to fewer than 15 by the end of next year.

On Monday, it agreed to sell its Spanish retail arm to Banco Sabadell – the country’s fifth-largest bank – for up to €104m (£88m) in cash and shares, but it will book a £250m loss on the deal.

The lender plans to float off the Verde branches under the TSB brand next year in a move that could lead to total costs of up to £1.6bn.