Lloyds profits surge, Chief eyes return to private ownership

13th Feb 2014 07:00

- Underlying profits rise 140 per cent to 6.2bn pounds- Underlying income up two per cent at 18.8bn pounds- Costs and impairments lower- Non-core asset reductions ahead of plan, capital position improves- Bonuses up, CEO paid 1.7m pounds in sharesUnderlying profits at Lloyds Banking Group more than doubled in 2013 with the company citing improved profitability within the core business and a significant reduction in non-core losses.Underlying profits surged to £6.17bn in the 12 months ended December 31st, up 140% from the £2.57bn recorded in 2012, as a 24% increase in core profits to £7.57bn outweighed non-core losses of £1.41bn, although the latter were 60% lower than the previous year.Chief Executive António Horta-Osório said that the results "confirmed that the group is returning to robust health"."We have a strong business model and have made significant progress, despite our legacy issues, in improving our capital position and profitability in a sustainable way. As a result, the UK Government started the process of returning the group to full private ownership," he said.The boss was paid a bonus of £1.7m in shares for his work in 2013, subject to additional performance conditions and deferred until 2019.The company said that the total discretionary bonus pool for employees in 2013 was £395m, compared with £365m in 2012. This is equal to 6% of pre-bonus underlying profits, down from 12% the previous year, due to the big jump in the bottom line.Profit growth was helped by a 2% increase in total underlying income to £18.81bn, a 5% reduction in total costs to £9.64bn and a 47% fall in impairment charges to £3.0bn, principally reflecting the mis-selling of PPI. PBT below some analysts' forecastsThis helped Lloyds swing to a statutory profit before tax (PBT) of £415m (Shore Capital's estimate: £1.4bn), compared with a loss of £606m the year before. After higher taxation, however, the company still registered a loss per share of 1.2p, though this was an improvement from the 2.1p-a-share loss in 2012.The lower-than-expected PBT owed to negative fair value movements, volatile items and an additional £200m of regulatory provisions for various issues that Shore Capital had not factored in.The banking net interest margin (NIM) rose by 19 basis points (bp) to 2.12%, while the cost:income ratio fell by 220bp to 52.9%.The cost:income ratio excludes the impact of its holding in St James's Place which was sold during the year, along with a number of other operations including its German life insurance unit, Heidelberger Leben. Lloyds also sold its Australian and Spanish banking businesses as it continued to increase its focus on the core UK business and reduce international exposure.The company's strategy to sell-off non-core assets was ahead of plan, with £34.9bn of disposals made during 2013 taking non-core assets to £63.5bn."Non-core asset reductions continue to be capital accretive overall and, together with core underlying profit generation and management actions, resulted in a considerable strengthening of our capital ratios," Lloyds said.Strong capital generation may support return to dividendsThe pro-forma fully loaded CRD IV common equity tier 1 ratio improved to 10.3% by the end of the year, from 8.1% previously.Lloyds also reiterated its commitment to restarting dividends, saying that it would apply to regulators in the second half of the year to resume payments "at a modest level" initially."This will be another important milestone on our journey to rebuild trust and confidence in our group," Horta-Osório said.After today's results Shore Capital expects a dividend of 1.5p to be paid in the second half of fiscal year 2014, rising to 3.5p for fiscal year 2015. BC