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Lloyds up as profits and shareholder returns rise

Lloyds' shares are in demand today after the company posted its highest profit since 2006. 

The bank trimmed costs, and boosted returns to shareholders. Last year the government sold its final stake in the formally bailed-out institution, and now we are seeing further proof the bank can stand on its own two feet.

Profits before tax jumped by 24% to £5.3 billion, though analysts were expecting £5.7 billion. The bank had to set aside an additional £600 million for the mis-selling of PPI, and that was the reason behind the bank failing to live up to expectations. When you strip out exceptional items, the bank saw profit rise by 8% to £8.5 billion, which was slightly below the consensus of £8.6 billion.

The bank clearly has a strong cashflow and a bullish outlook as it is pursuing a £1 billion share buyback scheme and boosted the dividend by 20%. This is a sign of the bank's health, and of its own independence as it returned to private ownership last year.

The net interest margin is a closely-watched profitability measure, as it highlights the difference between interest paid out on savings and the interest charged on loans, and for Lloyds it came in at 2.86% - a touch higher than its previous forecast. Lloyds was one of the first banks to pass on the interest-rate hike the Bank of England announced at the back end of last year. There is increased speculation the BoE will hike this year and that is likely to benefit Lloyds.

Post-bailout Lloyds took the tough medicine, trimmed down and turned itself around, and it plans to continue its policy of self-improvement. The company will invest £3 billion over the next few years to enhance efficiency, become more technology-focused and raise levels of customer service.

The bank has stepped out from the shadow that was cast over it during the credit crisis, and is slowly returning to full health. The share price is up 1.9% today.

We are expecting the Dow Jones to open down 65 points at 24,899 and we are calling the S&P 500 down 6 points at 2710.

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