Capital charms

31 July 2015 By John Foley Follow @johnsfoley

The UK bank raised its dividend despite laying aside 1.4 bln pounds to atone for mis-sold products. Lloyds investors hope more of its 2.9 billion pounds of excess capital will come their way. It might, if the taxman, regulators and peeved customers don’t get there first.

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Lloyds Banking Group reported underlying earnings of 4.4 billion pounds for the first six months of 2015, a yearly increase of 15 percent, driven by a rise in income and a reduction in funds put aside to cover future bad debts, along with flat costs. The UK lender also announced an interim dividend of 0.75 pence a share, equivalent to its payout for the whole of 2014.

On a quarterly basis, underlying earnings – excluding settlements, conduct charges and the TSB unit sold to Banco Sabadell in March – also rose 15 percent, though the bank reported a loss of 19 million pounds.

Chief Executive Antonio Horta-Osorio said that Lloyds would consider paying back surplus capital through dividends or share buybacks, retaining equity capital equivalent to roughly 12 percent of risk-weighted assets. That ratio, known as core equity Tier 1, was 13.3 percent at the end of June, after factoring in the funds needed to pay the dividend.

Lloyds put aside 1.4 billion pounds relating to mis-selling of payment protection insurance, a product that was supposed to help borrowers service their debts in illness or unemployment. In total, Lloyds has taken 13.4 billion pounds of charges for PPI, of which 2.2 billion have not yet been paid out.

The UK government now owns 15 percent of Lloyds’ common shares. The 41 percent stake it purchased during the financial crisis of 2007-9 has recently been reduced through share sales.

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