(Update) Taxpayer-backed Lloyds Banking Group (LLOY.L) is looking increasingly ready to be returned to full market ownership after reporting a strong set of half-year results.
The bank, which is 39% owned by the government after its bailout during the crisis in 2009, bounced back to the black in the first six months of the year with pre-tax profits of £2.1 billion compared to a loss of £456 million a year ago.
This was despite having to set aside another £500 million in relation to the payment protection mis-selling scandal. Lloyds has now made total provisions of £7.3 billion to PPI mis-selling and is being investigated by the Financial Conduct Authority over flaws in its complaints handling process.
Nevertheless shares in the lender jumped 4.4p or 6.4% to 72.8p as chief executive Antonio Horta-Osorio said the bank was ahead of schedule in its recovery and was in a position to reinstate dividend payments to shareholders.
This pleased investors who have not received a dividend from Lloyds since October 2008. The bank said it would speak to the Prudential Regulation Authority (PRA) soon about the timetable and conditions for resuming payouts.
With the prospect of dividends and the share price above the breakeven point of the government’s investment, the way should be set for the Treasury to start reducing its stake in the bank. In his Mansion House speech in June chancellor George Osborne spoke of his wish to reprivatise Lloyds. Today the Treasury said it continued to examine all its options but that no date or share price target had been set. One obstacle holding it up is Barclays' £5.8 billion rights issue which will command the attention and cash of institutional investors in September. Trying to sell a big stake in Lloyds at the same time may be too much at once.
Unlike rival Barclays, which the PRA ordered to raise nearly £13 billion, Lloyds has passed the regulator’s tougher rules on how much capital banks should have to support their business. It reported a tier 1 leverage ratio of 4.2%, well ahead of the PRA’s 3% requirement and has a total tier 1 ratio of 9.6%, which is expected to rise above 10% by the end of the year.
Horta-Osorio (pictured) highlighted a string of other figures to show the bank was on the right track. Net interest margin – which measures the profitability of the bank – rose to just over 2% while the core lending business returned to growth with loans and advances up 15% or £3 billion to £428 billion and a fall in bad loans. New loans included mortgages to more than 33,000 first-time home buyers.
However, the bank revealed it had spent nearly £1.2 billion on trying to sell its Project Verde branches to the Co-op bank. It was ordered to sell the network by European authorities in return for the 2009 state bailout. However, the Co-op had to back out of the deal earlier this year as the scale of its financial problems emerged. Lloyds will now rebrand the branches as TSB this autumn and aim to float the business on the stock market next year.
The only real cloud on the horizon remains Europe. Although the eurozone crisis has abated, it cautioned that a revival of the currency bloc’s woes is possible and could endanger the progress the bank has made dealing with the toxic corporate loans in Ireland and the UK inherited from the controversial takeover of HBOS in 2009.