By Max Colchester
LONDON-- Lloyds Banking Group PLC on Friday announced its first
full-year net profit and dividend payout since the U.K. lender was
bailed out during the financial crisis.
The bank, which is 24% owned by the U.K. government, posted a
GBP1.13 billion ($1.74 billion) net profit for 2014, compared with
a net loss of GBP838 million a year earlier, buoyed by falling
costs and an improving British economy. Lloyds's board received
clearance from regulators to recommend a dividend of 0.75 pence a
share for 2014, its first for nearly six years.
Chief Executive António Horta-Osório hailed the proposed
dividend payment as a symbol of the bank's return to normality
following a traumatic few years. "Over the last four years we have
transformed Lloyds Banking Group into a low cost, low risk U.K.
focused retail and commercial bank," he said.
In 2008, Lloyds was bailed out following a shotgun merger with
teetering mortgage giant HBOS. It has since slashed its balance
sheet and refocused on its British activities. The U.K. government
has gradually reduced its holding in the lender from around 40%.
The resumption of a dividend could accelerate further stake
reductions by the government.
Over the past year, Lloyds executives have held protracted
negotiations with U.K. regulators to restart paying dividends.
Regulators wanted to ensure Lloyds passed a balance sheet stress
test last October before giving the bank the green light. Many
analysts had expected Lloyds to subsequently propose a dividend of
1 pence.
"What really matters today is that we started," Lloyds Chief
Financial Officer George Culmer said of the dividend. The
executives said the bank intends to pay a dividend of 50% of
sustainable earnings in the medium term.
The proposed dividend will return around GBP130 million to the
U.K. government. U.K. Treasury chief George Osborne said in a
statement that he welcomed the Lloyds dividend, and that "all
proceeds from these sales are being used to reduce the national
debt."
In 2014, the bank's total income, excluding insurance claims,
fell 2% from a year earlier to GBP18.37 billion. Analysts were
concerned that the bank's net interest margin--the difference
between its cost of borrowing and the interest it charges
customers--fell in the last three months of the year compared with
the quarter before. The bank said it is targeting a higher net
interest income number of 2.55% this year. The bank's underlying
profit, which strips out a number of one-off items including
regulatory provisions, came in at GBP7.8 billion, compared with
GBP6.2 billion a year earlier.
Old problems continue to haunt the lender. The bank said it put
aside GBP700 million in the last quarter to compensate customers
who were wrongfully sold payment protection insurance. It also put
aside GBP425 million to cover a range of other regulatory
issues.
Lloyds is also bracing for a wave of criticism on executive pay.
Mr. Horta-Osório walked away with a package worth GBP10.8 million
in 2014 after a large long-term incentive share award came due. "I
intend to keep these shares until the government's stake is
significantly reduced," he said, pointing out the bank had added
GBP35 billion in market value under his tenure.
Write to Max Colchester at max.colchester@wsj.com
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