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.

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.

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.

Recommended

I wish I knew what a share buyback was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what a share buyback was, but I’m too embarrassed to ask

A share buyback means just what it says – a company buys back its own shares. But why? And how does that benefit shareholders?
3 Aug 2021
Improve your odds of investment success with these three stocks
Share tips

Improve your odds of investment success with these three stocks

Professional investor Tom Wildgoose of the Nomura Global High Conviction Fund highlights three of his favourite stocks.
2 Aug 2021
How to profit from pampered pets beyond the pandemic
Share tips

How to profit from pampered pets beyond the pandemic

Covid-19 has greatly boosted ownership. But the market had been expanding for years, and demographic, cultural and medical trends all point to long-te…
30 Jul 2021
Share tips of the week – 30 July
Share tips

Share tips of the week – 30 July

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
30 Jul 2021

Most Popular

Why the UK's 2.5% inflation is a big deal
Inflation

Why the UK's 2.5% inflation is a big deal

After years of inflation being a financial-assets problem, it is now an “ordinary things” problem too, says Merryn Somerset Webb. But central banks st…
16 Jul 2021
The MoneyWeek Podcast: Asia, financial repression and the nature of capitalism
Economy

The MoneyWeek Podcast: Asia, financial repression and the nature of capitalism

Russell Napier talks to Merryn about financial repression – or "stealing money from old people slowly" – plus how Asian capitalism is taking over in t…
16 Jul 2021
Three companies that are reaping the rewards of investment
Share tips

Three companies that are reaping the rewards of investment

Professional investor Edward Wielechowski of the Odyssean Investment Trust highlights three stocks that have have invested well – and are able to deal…
19 Jul 2021