Lloyds sees underlying profits soar as costs reduce - UPDATE

UK banking group Lloyds saw underlying profits soar in 2012 but was forced to take further provisions for Payment Protection Insurance (PPI) redress in the fourth quarter.

UK banking group Lloyds saw underlying profits soar in 2012 but was forced to take further provisions for Payment Protection Insurance (PPI) redress in the fourth quarter.

Underlying profit increased from £638m to £2.61bn last year, as costs reduced by 5.0% to £10.1bn. This cost reduction was in line with the strategic review target but two years ahead of plan.

However, the company registered a statutory loss of £570m for 2012, mainly due to PPI provisions totalling £3.58bn, £1.5bn of which was booked in the fourth quarter alone. The bottom line also includes £3.21bn of gains from sales of government securities.

Chief Executive Antnio Horta-Osrio said: "The substantial progress we made in 2012 means that we are now ahead of our plan to transform the group, and this was reflected in our stronger underlying financial performance in the year."

He said that since the bank's strategy was set out in June 2011, it has significantly strengthened the balance sheet, improved efficiency an focus while continuing to work through "legacy issues".

Strong capital generation meant that the core-tier one capital ratio increased to 12.0%. Capital ratios were helped by the continued non-core asset reduction of £42.3bn during the period, some £17bn more than the initial guidance.

"We are creating a business of which customers and colleagues can be proud of, and which I am confident will help Britain prosper, and deliver strong, stable returns to shareholders," he said.

2013 outlookAs for the current financial year, the company said that costs are expected to fall further to £9.8bn.

Underlying profits are expected to increase further due to the improvement in portfolio quality and a substantial reduction in impairment charges.

Furthermore, Lloyds expects to reduce the non-core asset base by at least £20bn in 2013, putting it on track to achieve its target of a non-core asset portfolio of £70bn or less by the end of next year.

Bonus poolThe 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.

Horta-Osrio was awarded a £1.5m bonus in deferred shares for his work in 2012. The shares will not be released until 2018 and depend on Lloyds' 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.

Recommended

Share tips of the week – 30 September
Share tips

Share tips of the week – 30 September

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
30 Sep 2022
The best British tech stocks from a thriving sector
Share tips

The best British tech stocks from a thriving sector

Move over, Silicon Valley. Over the past two decades the UK has become one of the main global hubs for tech start-ups. Matthew Partridge explains why,…
29 Sep 2022
These 3 top value stocks offer
Share tips

These 3 top value stocks offer

Professional investor Adam Rackley of Cape Wrath Capital highlights three overlooked value stocks to buy.
29 Sep 2022
Three top-notch Asian stocks to buy
Share tips

Three top-notch Asian stocks to buy

Professional investors Adrian Lim and Pruksa Iamthongthong, managers of the Asia Dragon Trust, pick three of their favourite Asian stocks to buy now.
23 Sep 2022

Most Popular

Why everyone is over-reacting to the mini-Budget
Budget

Why everyone is over-reacting to the mini-Budget

Most analyses of the chancellor’s mini-Budget speech have failed to grasp its purpose and significance, says Max King
29 Sep 2022
How the end of cheap money could spark a house price crash
House prices

How the end of cheap money could spark a house price crash

Rock bottom interest rates drove property prices to unaffordable levels. But with rates set to climb and cheap money off the table, we could see house…
28 Sep 2022
What to do as the age of cheap money and overpriced equities ends
Investment strategy

What to do as the age of cheap money and overpriced equities ends

The age of cheap money, overpriced equities and negative interest rates is over. The great bond bull market is over. All this means you will be losin…
29 Sep 2022