Lloyds finally banks a chunky profit rise

At last, a bailed-out bank that seems to be sorting itself out. Despite all the fines and scandals, Lloyds Banking Group has posted £2bn profits for the first quarter.

by Michael Northcott
Last Updated: 19 Aug 2013

After the planned sale of 632 Lloyds branches to the Co-op fell through and then it had to take a £250m hit on exiting the Spanish market, Lloyds executives have plenty of reason to be crestfallen. But today, things were looking up. The bank posted pre-tax profits of £2.04bn, seven times the profit in the same period last year, and a gargantuan increase on the piffling £1m profit it made in Q4 2012. 

So what has helped it get back to growth? Well, its ‘non-core’ division, which contains all its toxic assets, enjoyed a 22% reduction in impairments for the period. This meant a lower-than-expected loss of £392m – and of course the saving has mostly gone on the bottom line. It also sold a 20% stake in St James’s Place wealth management business, which gave it a £394m windfall. The added benefit of dumping the share of that business is that if it does badly, Lloyds’ balance sheet won’t suffer.

Another improvement was that, for the first time in ages, the bank did not have to make any additional provisions for compensating customers over payment protection insurance complaints. So far, that little thorn in the side has cost Lloyds alone more than £7bn.

Chief executive António Horta-Osório said that the bank was making ‘real progress’, adding: ‘We are delivering real benefits for customers, colleagues and shareholders by investing behind our simple, UK customer-focused retail and commercial banking model, and are now further ahead in our plan to transform the Group, as reflected in the enhanced guidance for costs and capital we are giving today’. Fair comments, it seems, but if there are any more scandals however, some might dispute the ‘benefits for customers’ bit…

Still, the bank is evidently in much better health than it was for the whole of last year. And whilst there are apparently no talks of the government selling taxpayers’ 39% stake back to the private sector, the improved financial performance will certainly fuel expectations that the process might be started sooner rather than later.  Shareholders are obviously pleased, too: the share price rose by 5.5% in the early hours of Tuesday morning, making it the biggest riser on the FTSE 100. 

They’re obviously hoping that the dividend won’t be suspended for too much longer…

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