By Max Colchester
LONDON--Shares in Lloyds Banking Group PLC rose Friday,
reflecting improving earnings and expectations that the bank will
be in a position to return money to shareholders this year.
The bank has been slowly returning to health since its U.K.
bailout in 2008, helped by cost cutting and a resurgent British
economy that has reduced bad loans, increased margins and fueled
demand for mortgages. The part U.K. government-owned lender is set
to start paying its first dividend since the financial crisis this
year.
This, along with its increased capital ratio, has raised belief
among analysts that Lloyds could make a substantial payout to
shareholders. Lloyds Chief Executive António Horta-Osório declined
to comment on this Friday, saying investors should wait until the
half-year results to find out. Shares rose 7% in early afternoon
trading.
Joseph Dickerson, an analyst at Jefferies, said that a share
buyback in the next 18 months "is entirely possible."
Mr. Horta-Osório said he expected the U.K. economy to continue
to grow this year despite the May 7 general election. "I don't
think the election will change these trends soon," he said on a
call with reporters.
The bank said total income, net of insurance claims, was down 2%
to GBP4.5 billion ($6.9 billion) in the first quarter from the same
period a year before. Net profit decreased to GBP913 million from
GBP1.1 billion in the same quarter last year, as the bank took a
GBP660 million loss in relation to the spinoff of its TSB Banking
Group PLC unit. As part of a potential deal, Lloyds pledged to pay
TSB a lump sum to cover information-technology costs.
In March, Spain's Banco de Sabadell SA agreed to a GBP1.7
billion takeover of TSB, which was created after Lloyds was ordered
by European authorities to sell 631 branches to boost competition
following its bailout. The U.K. government, which currently owns
just under a 21% stake in the bank, has been whittling down its
interest in the lender over the past few months.
In February, regulators gave the bank the all clear to start
paying its first dividend since its bailout. The bank reiterated
its plan Friday to pay an interim and final dividend in 2015.
Lloyds also said it was raising its net interest income
target--the difference between its cost of borrowing and the price
it lends at--above its original target of 2.55%.
In the first quarter, Lloyds didn't have to take a provision to
cover the wrongful sale of insurance products to customers as it
has in past quarters. However, the bank's Chief Financial Officer
George Culmer declined to rule out whether more provisions would be
made in the coming year.
The bank said underlying profit, which strips out a number of
costs, was up 21% on last year to GBP2.2 billion.
Write to Max Colchester at max.colchester@wsj.com
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