Lloyds cashes in first profit in three years

Chief exec Antonio Horta-Osorio is on the defensive about accepting a £1.7m deferred bonus.

by Rachel Savage
Last Updated: 17 Feb 2014

Lloyds Banking Group recorded its first pre-tax profit in three years in 2013 and confirmed that its chief exec will accept a £1.7m all-share bonus. There’s light at the end of the taxpayer-backed tunnel after all, as the bank prepares to return to full private ownership later this year.

Full year pre-tax profit was £415m, up from a £606m loss in 2012. Underlying profit, which strips out costs such as £3.1bn set aside to cover the misselling of payment protection insurance (PPI), was up 140% from £2.6bn to £6.2bn (a figure the bank rushed out last week).

Chief exec António Horta-Osório’s £1.7m bonus is being deferred for five years, and will only be triggered if certain ‘performance conditions’ are met (likely to include successfully going private and restarting the dividend flow). The lender’s overall bonus pool rose 8% to £395m, 70% of which is in shares.

Lloyds, which is 32.7% owned by the taxpayer after the government sold a 6% in September, has been doing pretty well then. But Horta-Osório was still on the defensive about the political stinkbomb that is bonuses, saying the company ‘should link compensation with performance’.

‘We are now in a position to restart dividend payments so we are in the process of becoming a normal bank again, so yes I will take this bonus,’ he said. ‘In five years’ time, if these conditions have not been met then I will not receive any bonus.’

So, everything’s almost back to ‘normal’ for Lloyds then – it’s like the financial crisis and PPI scandal, for which the bank set aside another £1.8bn to take the total provision to £10bn last week, never even happened.

The bank also repeated what it said in its trading update last week, that it will apply to the Prudential Regulatory Authority (PRA) in the second half of this year to restart dividend payments in 2015.

Horta-Osório said he was ‘a bit puzzled’ about investors’ disappointment with the bank’s target of paying a dividend of at least half of profits. It’s not that confusing really though – Lloyds used to pay out up to 80% before the financial crisis, and today shareholders may well be scratching their heads as to why bonuses are business as usual, whereas dividends have yet to even materialise.

The markets weren’t too happy that’s for sure, despite the return to pre-tax profit, sending shares down over 4% in mid-morning trading. Could also have something to do with the unexpectedly enormous tax bill of £1.2bn, which meant that Lloyds made an overall loss of £838m. Swings and roundabouts.

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