Lloyds shares surge after dividends resumption is signalled

Lloyds posted a £2.13bn profit for the six months to June 30, compared with a loss of £456m for the same period a year earlier.

Story highlights

  • Group CEO Horta-Osório declined to say when there might be a resumption of dividends
  • Horta-Osório also fuelled expectations that the UK government would start selling its 39 per cent stake soon
  • The underlying pre-tax profit was £2.9bn, almost triple the £1bn recorded in the first half of 2012.

Shares in Lloyds Banking Group surged on Thursday as it signalled that a resumption of dividend payments was on the horizon.

António Horta-Osório, its chief executive, also fuelled expectations that the UK government would start selling its 39 per cent stake in the group soon.

"The share price is now in a position where the government can return taxpayers' money at a profit," he said, adding that it was up to the government to decide "when and how" it started to sell its stake.

Horta-Osório declined to say when there might be a resumption of dividends, which have not been paid since 2008, when it rescued rival lender HBOS in an ill-fated deal that necessitated a government bailout.

The talks with regulators would commence in the second half of 2013 and would cover the timetable and conditions for dividend payments, the bank added.

The news was delivered as part of Lloyds' half-year results, which showed a sharp rise in profit and an improved outlook for its lending activities in spite of yet another sizeable provision for payment protection insurance mis-selling.

Shares in Lloyds responded by rising 8 per cent to 74.08p in morning trading in London on Thursday, making them the biggest gainers in the FTSE 100.

They have more than doubled in value over the past year and are valued at 61p each in the government's accounts.

However, there are a range of calculations relating to the government's "in-price" -- the level at which the government's £21bn bailout was injected -- which run from 61p to 73.6p.

The Treasury said the results showed Lloyds was making continued progress towards becoming "stronger and safer". Although a sale of its stake is under consideration, it said it had no timetable or target price for starting the process.

Lloyds posted a £2.13bn profit for the six months to June 30, compared with a loss of £456m for the same period a year earlier.

The underlying pre-tax profit was £2.9bn, almost triple the £1bn recorded in the first half of 2012.

The impairment charge -- the money set aside to cover soured loans -- fell 43 per cent to £1.81bn.

Its net interest margin -- the difference between its cost of funding and its income from mortgages and other interest-generating products -- was 2.01 per cent during the period, up from 1.93 per cent.

Lloyds predicted that this would rise to almost 2.1 per cent for the full year, higher than the 1.98 per cent it had previously predicted.

The bank set aside £500m more to cover the cost of compensating PPI customers, bringing its total provision for the industry-wide scandal to £7.28bn.

It said the extra charge was necessary because the compensation costs in the first half had been higher than it had expected. Rival Barclays increased its own provision for PPI redress by £1.35bn to £3.95bn earlier this week.

George Culmer, finance director, acknowledged that the fresh charge was a "significant amount", adding that it was "disappointing" to have to top up provisions that had been increased only five months ago.

The £500m PPI charge includes £50m to cover the cost of responding to a Financial Conduct Authority investigation into failings in its complaints handling process.

Analysts at Canaccord Genuity viewed the first-half results as strong, saying the positive factors included a more rapid than expected reduction in non-core assets. Dividends could resume at the half-year stage in 2014, they added.