Lloyds Banking Group was the biggest faller on a weak FTSE 100 on Monday morning, as the bank announced further mis-selling costs and disappointed investors hoping for a rapid return to half-decent dividend payments.
The decline came amid small losses in shares across Europe as investors absorbed more bad news about emerging markets. This time it was the news that China’s official manufacturing PMI fell to 50.5 in January from 51 in December.
Last week these concerns about emerging markets pushed the FTSE 100 down by 2.3%, marking a 3.5% decline for January, with a global sell-off exacerbated by the US Federal Reserve’s decision to cut its stimulus scheme by $10 billion a month to $65 billion.
On Monday morning the UK's blue chip index was down 0.1% at 6,500. Europe's FTSE Eurofirst 300 was trading 0.5% lower, by comparison.
Lloyds (LLOY.L) fell 2.7% to 81p after an unscheduled trading update in which the bank announced £1.8 billion of costs to cover the mis-selling of loans insurance (PPI), bringing the total to £10 billion.
The state backed lender said underlying profits for 2013 would be £6.2 billion. The bank disappointed investors who were hoping for the prompt resumption of chunky dividend payments, telling shareholders it would apply to the regulator in the second half of 2013 to recommence payouts. These would start at a ‘modest level’, after which the board expects to have ‘a progressive dividend policy’ moving to a payout ratio of 50% in the medium term.
‘We believe that the market will be disappointed as dividend payment was expected to have commenced at the beginning of 2014. Also there were expectations that the payout ratio would be much higher than 50% going forward,’ said Espirito Santo analyst Shaliesh Raikundlia.
Joesph Dickerson and team at Jefferies were equally disappointed: ‘The "modest level" is disappointing to us as we had factored in a 40% pay-out in 2015, which looks optimistic in light of today's announcement. We would not expect a >50% pay-out until 2018 at best.
Gary Greenwood at Shore Capital put a better spin on it for income investors: ‘Although the timing of resumption of dividend payments and the additional PPI provision are disappointing, we think, the fact that the underlying momentum in the business is better than anticipated and the ultimate dividend payout ratio is in line with our expectation provide more than adequate compensation, in our view.’
This week investors have plenty to keep them occupied. Eurozone and UK central bank policy decisions are due on Thursday. The most closely watched economic data will most likely come in the US labour report on Friday, a key barometer for future Fed policy