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Lloyds Bank FY pre-tax profits soar to £4.2bn; pays special divi

By Frank Prenesti

Date: Wednesday 22 Feb 2017

Lloyds Bank FY pre-tax profits soar to £4.2bn; pays special divi

(ShareCast News) - Lloyds Bank more than doubled full year pre-tax profits to £4.2bn from £1.6bn in 2015 as it announced a special 0.5p-a-share dividend.
Underlying profits came in at £7.9bn, slightly lower than £8.1bn in the previous year. Total income was £17.5bn compared with £17.6bn in 2016.

Pre-tax profits for the fourth quarter rose to £973m from a £507m loss in the same period last year

A final ordinary dividend of 1.7p a share was declared making a total ordinary dividend of 2.55p a share, up 13% on 2015.

Conduct charges of £2.1bn include a further £1bn provision for PPI, which was down from last year´s £4bn. The rest covered a range of other conduct issues of which £475m was recognised in the fourth quarter.

The charge for the year included £280m relating to packaged bank accounts, £261m for arrears-related activities on secured and unsecured retail products and £94m over insurance policies issued by Clerical Medical Investment Group products sold in Germany, together with a number of other conduct risk provisions totalling £450m across all divisions, Lloyds said.

Lloyds, owner of the Halifax and HBOS banks, added that the government's stake, purchased as part of the £20.5bn 2008 bailout during the financial crash, was now down to 5%.

December´s acquisition of credit card provider MBNA will boost profits margins, management expects, enabling it to better tackle the low UK interest rate environment.

"Given our UK focus, our performance is inextricably linked to the health of the UK economy which has been more resilient than the market expected post referendum, with GDP growth of 2% in 2016," said chief executive Antonio Horta-Osorio.

"The UK's decision to leave the European Union means the exact nature of our relationship with Europe going forward remains unclear and the economic outlook is uncertain."

"However, the recovery in recent years with low unemployment, reduced levels of household and corporate indebtedness and increased house prices means the UK is well positioned."

The bank's capital ratio was 13.8%, higher than the 13% target anticipating the 80 basis points (bps) capital cost of buying credit card outfit MBNA, and higher than estimates.

Impairments fell 16% year-on-year, 4% better than consensus with an asset quality review (AQR) at 15bps.

Shares in the bank rose around 4% to above 69p for the first time since the Brexit referendum last June.

Lloyds' capital and dividend strength is a "key attraction" for investors, said broker RBC Capital Markets, with the dividend roughly in line with consensus.

With management guiding to a 25bps asset quality ratio in 2017, "which is much better than consensus at 33bps", RBC said the 8bps difference is worth around 5% on consensus profits before tax.

Analyst Laith Khalaf at Hargreaves Lansdown said the rise to £4.2bn profits was largely down to PPI costs falling so much, as the bank returns to full health after being knocked for six by the financial crisis.

"Lloyds will be hoping it has drawn a line under the whole PPI affair, and profits will thus be unshackled from a millstone that has cost the bank dearly in recent years," he said, while its success in cutting costs is partly down to Lloyds cutting its cloth to adapt to banking in the post-crisis era, and partly due to the ongoing digitalisation of banking services.

"The fact that Lloyds has been able to increase its dividend, alongside shelling out £1.9 billion for the MBNA credit card business, is a strong sign from the business and will raise jubilant cheers from shareholders."

However he noted it was not unreservedly good news, with Lloyds' flat top line showing how difficult it is for banks to make money with interest rates so low.

"The bank is also profoundly plugged into the domestic economy, so if there is a UK downturn as a result of Brexit, or indeed for any other reason, Lloyds will take a hit. If the bank does encounter choppy waters though, at least it's doing so from a position of strength."


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