First dividend in seven years to be paid
Lloyds unveils profit and delays boss’s bonus
Bonus: Antonio Horta-Osorio
Lloyds Bank has today confirmed its first dividend payment for seven years and announced that a multi-million pound bonus to its chief executive will be paid in shares and deferred almost certainly until the government has sold its entire stake in the bank.
With public anger over bonuses showing no sign of receding, chairman Lord Blackwell said the payout of 535,083 shares to Antonio Horta-Osorio will will only kick if the price is above 75.5p or the bank is fully back in private hands.
The bonus deal is clearly intended to assuage public opinion and the bank will be hoping that a 0.75p first dividend since February 2008 will show that it is rewarding all shareholders as it returns to growth.
The deferred bonus is worth £4 million but he will pocket closer to £11m via other payments including his £1m salary, other allowances and long term incentive plans.
The rise in the share price above break even has enabled the Treasury to offload chunks of its holdings, including a further 1% that was sold to institutions on Monday, taking the government’s stake down to 23.9% from a peak of 43%.
The bank announced a 325% increase in pre-tax profit to £1.8 billion and a bonus pot down 3.6% to £369.5m. It said the number of staff earning more than €1m (£720,000) has risen from 27 to 49.
There has been some pressure for Mr Horta-Osorio to surrender at least a part of the package, though this looks unlikely. The decision by Ross McEwan, his counterpart at Royal Bank of Scotland, to relinquish a £1m allowance has only added to the difficulty faced by the Lloyds board.
A further £700m has been set aside by Lloyds to compensate customers wrongly sold payment protection insurance, taking the total to more than £11 billion.
Critics will also point out that in spite of its improved trading position Lloyds Bank was the most complained about business in the second half of 2014. The Financial Ombudsman Service said payment protection insurance problems made up two thirds (65%) of all complaints it received between July and December last year.
Commenting on the results, Mr Horta-Osorio said: “Over the last four years we have transformed Lloyds Banking Group into a low cost, low risk, UK focused retail and commercial bank. This has been made possible by the hard work of everyone at the Group.
“Today’s results also demonstrate that our profitability and capital position have improved significantly, and this has enabled the Board, for the first time in over six years, to recommend we pay a dividend to our shareholders.
“While we recognise we have more to do, we enter the next phase of our strategy from a position of strength. We will remain focused on our customers, embrace the digital age throughout the whole Group, continue our support for the UK economy and aim to deliver strong and sustainable returns for our shareholders.”
George Osborne, the Chancellor, said: “For the first time since its £20bn bailout in 2008, Lloyds bank has made a profit and will start paying a dividend to its shareholders.
“This is good news not only for taxpayers, who will get at least another £100 million from the dividend, but also for millions of savers who hold Lloyds shares or have money invested in Lloyds through their pensions”.
John Cridland, CBI Director-General, said: “It is encouraging to hear some good news from the banking sector. All of our major banks are on difficult turnaround journeys and Lloyds have shown that progress is possible.
“It is right in these circumstances that the hard work of staff is recognised. The CBI has been clear that rewards for failure are unacceptable but legitimate financial rewards for success should not be vilified.”
Graham Spooner investment research analyst at The Share Centre, said: “Since the merger with mortgage giant HBOS, investors should note that Lloyds has slashed its balance sheet and refocused on its British activities. As a result, the government has been able to gradually reduce its holdings in the lender from around 40%. Moving forward, it is more than likely the government will want to sell off its remaining 23.9%, which has been over-hanging the market and acting as a potential drag on the share price.
“We recommend Lloyds as a ‘hold’ for medium risk investors. Despite the group’s positive transformation into a lower risk, low cost commercial bank, analysts continue to highlight the pressure on earnings in the medium term. Investors should be aware that the company is still haunted by compensation claims and in Q4, Lloyds put aside a further £700m for customers. However, the sign of improved confidence in future prospects and a resurgent UK economy should help the group to remain on track with its recovery plans.”
Coutts is latest caught up in controversy
RBS, which is trying to sell the international operations of Coutts, the Queen’s bank, said the Swiss division is being investigated by German authorities for allegedly helping wealthy clients evade tax.
It follows a similar investigation in Switzerland into the affairs of HSBC’s private bank.
RBS chief executive Ross McEwan said the bank will take ‘severe action’ if any wrongdoing is found in the business. The bank announced alongside its annual results yesterday that Rory Tapner, chief executive of Coutts, would be leaving the business.