Lloyds Bank resumes its dividend, but provisions still drag - updated
01:00, 27 februari 2015
· Av CMC Markets
Over the last 7 years Lloyds Banking Group has had a tortuous time since swallowing up the poison pill that turned out to be HBOS, and having to endure the indignity of a government bailout.
In all that time the bank has been at the epicentre of a number of scandals including the mis-selling of PPI insurance, as well as claims of forex and Libor rigging.
Today's trading update marks an important milestone in the recovery story as the bank restored its dividend by announcing a 0.75p dividend payment for the year, slightly less than expected, as well as an increase in pre-tax profits to £1.8bn from £415m the previous year, though this was much less than expected.
At its six month trading update last year the bank announced further provisions against PPI and other regulatory and conduct issues and it appears to be the same story over the next two quarters as well with a further provision being announced today, bringing the total set aside for PPI in 2014 to £2.2bn, which means the total set aside over the past few years now stands at £12.2bn.
Other set asides included a further provision of £925m in respect of regulatory and conduct issues.
The banks cost base has continued to shrink as the company continues to close branches and reduce headcount, due to the changing nature of customer banking habits in the new digital age of contactless payment and internet banking. Since 2010 the cost base has shrunk from £11bn to £9bn.
Also encouraging is the year on year loan growth of 17%, which shows that the UK economy continues to look fairly strong, while loan impairments are also down by 21%.
The bank's tier 1 capital ratio has improved, but there is a little disappointment that the profits came in a little bit short, due to further provisions, which continues to be a running sore.
The dividend is also less than expected, which again could be viewed as disappointing, but it's a start and investors will be looking towards a further improvement with the continued off-loading of the remainder of TSB by the end of this year.
As far as investors are concerned it's a question of whether they view the glass as half empty or half full, but whichever way you look at it, after 6 years of graft there appears to be light at the end of the tunnel.
The hope is that as the shares continue to rise the UK government will continue to pare down further its stake in the bailed out lender as it did this week from 25% to 24%, while markets will also be looking for further signs that Lloyds will continue to pare down its stake in the recently spun off TSB.
Another factor driving the share price will be the hope that TSB shares will continue to do well and return to the 280p level which Lloyds last sell some shares in September last year, given it needs to sell its remaining 50% stake in the bank by the end of this year.
The bank still needs to do more given that it remains one of the most complained about banks in terms of customer service, but as long as the UK economy remains on an even keel and there is no further political interference then the prognosis remains positive while we remain above the 70p level which has acted as a floor for the share price for the last 18 months.
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