Lloyds sees shares drop as government prepares to offload stake - UPDATE

Lloyds was one of the worst performing constituents on the FTSE 100 on Friday afternoon on speculation that the government is looking to sell its stake in the lender at a lower price than when it bailed out the bank five years ago.

The government took a 39% interest in Lloyds during the financial crisis and would consider offloading its stake once the share price hits 61p, around eight pence higher than Friday's price.

This is lower than the average price of 73.6p the taxpayer paid in 2008.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Impairments dent the bottom line in 2012The company said that it had paid its Chief Executive Officer (CEO), Antnio Horta-Osrio, a £1.5m bonus despite still recording a loss for 2012. Even though underlying profits soared last year, the company reported a statutory loss before tax of £570m after being hit by £5.70bn in impairment charges.

The majority of these related to so-called "legacy issues" which referred to mis-sold Payment Protection Insurance (PPI) and interest-rate hedging products (IRHP) during the period. Provisions for PPI redress alone totalled £3.58bn in 2012, £1.5bn of which was taken in the fourth quarter.

The statutory loss per share fell from 4.1p to 2.0p last year, worse than the 1.3p loss per share expected by the consensus of analysts.

Shares were down 3.5% at 52.58p by 15:43 on Friday. Analyst Ian Gordon from Investec said to expect a "correction" in the stock, saying that the share price has "got ahead of itself" as of late.

Nevertheless, the group statutory loss before tax narrowed significantly from £3.54bn in 2011, when the company booked a full-year impairment charge of £9.79bn.

Underlying profit increased from £638m to £2.61bn last year, helped by the 42% fall in impairments as well as a 5.0% reduction in costs (from £10.62bn to £10.09bn). This cost reduction was in line with the strategic review target but two years ahead of plan.

DividendsLloyds decided again not to pay a dividend due to "regulatory uncertainty and the statutory loss in the year". It has not paid a dividend to shareholders since the government bailed out the bank during the financial crisis.

Horta-Osrio said that the company "remains committed to recommencing dividend payments when the financial position of the group and market conditions permit and after regulatory capital requirements are clearly defined and prudently met".

In a research report on Friday, Canaccord Genuity said that unless the regulator allows an earlier resumption of ordinary dividend - something that is likely "some way off" - "we do not see much valuation support/upside at current share price levels".

Bonus poolHorta-Osrio was awarded a £1.5m bonus in deferred shares for his work in 2012. However, the shares will not be released until 2018 and will depend on the share price at the time and the price of the government's sale of company stock, the remuneration committee said.

"The board believes that these additional conditions are in the interests of all shareholders and support our common aim of repaying the taxpayer," Lloyds said.

The total bonus pool at the bank for 2012 was £365m, down 3.0% year-on-year. The company said that the reduction was applied to a greater degree to senior staff.

The average value of bonus per employee was £3,900, similar to 2011.