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Lloyd’s Banking Group (LSE:LLOY) is ahead of its plan to transform the banking institution into a “simple, lower-risk, customer-focused UK retail and commercial” bank that supports the British economy, the London-based bank’s Chief Executive, Antonio Horta-Osorio, said in a statement Friday, in reference to the bank’s year-end report that saw a “substantial increase” in underlying performance.
The partly publicly-owned bank ended the previous year at a statutory loss of £570 million, just a sixth of the £3.5 billion loss it posted for 2011, owing to the continued charges of what the bank referred as “legacy issues” that wiped out its underlying profit.
Lloyds’ underlying profit, which excludes the sum set aside for redress of payment protection insurance (PPI) and interest rate hedging products, jumped to about £2 billion from 2011 to £2.6 billion in 2012 as losses from non-core assets were mitigated following the reduction of the non-core portfolio.
However, complaints arising from mis-selling of PPI rose and Lloyds had set aside £1.5 billion in the last quarter of 2012 to cover for the same, equivalent to over 40% of the total sum for PPI redress for the year at £3.5 bilion. The bank also set aside some £400 million for interest rate hedging products sold to small and medium-scale enterprises.
Yesterday, Royal Bank of Scotland (LSE:RBS), where the British public also holds 81% stake, reported £5.1 billion in pre-tax losses owing to impairment charges, including PPI and IRHP redress provisions and regulatory fines over the LIBOR rigging.
Privatisation
Despite improved performance, however, Lloyds will not provide dividend and decided to peg the bonus of its chief executive to several conditions, among others, if the British government will be able to sell at least a third of its stake in the bank at a price above 61 pence.
Lloyds was bailed out from the financial crisis in 2008 and is 40% owned by the UK public and its shared were worth almost nothing at the height of the crisis, registering 0.01 pence in February 2009.
Debate is now ongoing amongst policymakers over the possibility of distributing the stakes of public funds individually to Britons, though strong criticisms are hurled against the idea.
In a separate statement, Lloyds noted the Treasury statement that “the average price at which the equity support provided to Lloyds Banking Group is recorded in the Public Finances” was at 61 pence.
Lloyds’ share price never reached that mark in any day in 2012, but the bank claimed it is the best performing stock amongst the FTSE 100 constituents last year, accrediting the performance to CEO Horta-Osorio.
On the London Stock Exchange, Lloyds’ share price went on a downtrend and was 7.5% lower to 50.41 pence at 12:30 GMT with over 200 million shares traded, making it the second heavily traded stock today and considerably pulling the FTSE 100 to the red.
FTSE 100 was down 39.04 points, or 0.6% to 6,322.12 at around the same time.
