Lloyds soars as anticipation builds for dividend, government sale - UPDATE

1st Aug 2013 16:40

Shares in part-nationalised lender Lloyds surged ahead on Thursday as hopes over the resumption of a dividend sparked a positive reaction from markets."As a consequence of the significant progress made in strengthening the balance sheet we now expect to commence discussions with our regulators in the second half of this year on the timetable and conditions for dividend payments," said Chief Executive Officer António Horta-Osório.Shareholders have not pocketed a dividend from the UK bank since October 2008.The comments came as the bank hailed a huge increase in underlying profits in the first half - helped by rising income and margins and falling costs and impairments - and upgraded full-year guidance on a number of metrics.The stock was up 8.26% at 74.12p before the close of trade, a level well ahead of the government's minimum break-even price of 61.2p, sparking speculation that the state could soon embark on a sale of its 38.7% holding.According to The Telegraph, Horta-Osório said Lloyds was ready for the government to start the process: "The government is now able to decide when and how to return taxpayers money at a profit," he said.Profits surgeThe bank reported an underlying profit of £2.90bn, up from just £1.04bn in the first six months of 2012. On a statutory basis, the bottom line swung to a profit before tax of £2.13bn, compared with a loss of £0.46bn previously.The company said that costs and impairments were down 6.0% and 43%, respectively. Meanwhile, the net interest margin (NIM) improved ahead of guidance to 2.01%.Total underlying income rose 2.0% from £9.25bn to £9.46bn.According to analyst Gareth Hunt from Canaccord Genuity, Lloyds' figures for the first six months of the year were "strong" with income and profits coming in ahead of forecasts and costs and impairments below.The broker placed its 'neutral' rating under review on Thursday, taking a more optimistic view saying that a strengthening balance sheet and earnings momentum could leave Lloyds in a position to pay an interim dividend in 2014."We continue to believe that dividend re-rate stories offer investors the most attractive risk-reward opportunities in the sector."Guidance liftedLloyds made upwards revisions to its full-year forecast, with NIM expected to rise to around 2.10%, ahead of the previous 1.98% target.As announced earlier in the year, total group costs should fall to around £9.6bn in 2013 and to £9.15bn in 2014, an improvement of nearly £1.0bn on previous guidance.Non-core assets are to be scaled back to less than £70bn by the year end, while the fully loaded core tier-one capital ratio should rise above 10%, with both targets being 12 months ahead of plan."Our strong momentum is reflected in the significant upgrades to our guidance which we have announced in this half-year," Horta-Osório said."We have made substantial progress on the delivery of our strategic plan, and have significantly improved the group's performance, balance sheet strength and resilience while continuing to deal with legacy issues. While the UK economy remains subdued and we await further clarification on the detail of regulatory implementation, including on capital and ringfencing, we expect to deliver further progress in the remainder of 2013 and beyond."BC