Lloyds swings to fourth-quarter profit as it boosts dividend

[LONDON] Lloyds Banking Group Plc, Britain's largest mortgage lender, boosted its dividend and said lending margins would hold up this year amid record-low UK interest rates as the bank swung to a fourth-quarter profit.

Pretax profit was £973 million (S$1.721 billion), compared to a loss of £507 million a year earlier, the London-based bank said in a statement Wednesday. Excluding one-time charges, profit rose 2 per cent to 1.79 billion pounds, topping the £1.71 billion average of seven analyst estimates compiled by Bloomberg News.

Chief Executive Officer Antonio Horta-Osorio, 53, is looking to protect Britain's largest consumer bank from the pressure of record-low interest rates by eliminating jobs and expanding in higher-margin lending with the acquisition of Bank of America Corp's MBNA UK credit card business. 

Lloyds said its net interest margin would be more than 2.7 per cent in 2017 before the MBNA purchase, higher than many analysts had forecast.

"We have delivered strong financial performance in 2016 as we continue to make good progress against our strategic priorities," Mr Horta-Osorio said in the statement.

"Strong capital generation, which is a consequence of our business model, has enabled us to fully cover the expected capital impact of the MBNA acquisition, increase our ordinary dividend by 13 per cent and pay a special dividend."

Lloyds shares climbed 4.1 per cent to 69.49 pence at 8.01am in London trading, the biggest jump since December. Although Lloyds shares have climbed this year, the bank is still below where it traded before Britain voted to leave the European Union in June. BlackRock Inc replaced the UK government as the largest shareholder last month as the state continues to gradually shed its stake.

Lloyds said it would pay an ordinary dividend of 2.55 pence per share and a special dividend of 0.5 pence per share, up from total payouts of 2.75 pence a year earlier. The firm's core Tier one capital ratio, a measure of financial strength, rose to 13.8 per cent from 13.4 per cent at the end of September.

The net interest margin, the difference between income from lending and the cost of funding, fell to 2.68 per cent from 2.69 per cent in the third quarter. Impairments fell 16 per cent from a year earlier to £196 million. Revenue fell 2 per cent to £4.35 billion.

The bank had more than £800 million of one-time items, including £475 million of conduct charges and £232 million of restructuring costs.

Chief Financial Officer George Culmer said the conduct provisions, which related to issues including claims over packaged bank accounts, were "disappointing," and the bank expects them to fall in future periods.

Lloyds didn't take any provisions for the payment protection insurance scandal in the quarter, after a £2.1 billion charge in the year-earlier quarter drove that period's loss. The lender has taken more than £17 billion in provisions since 2011.

BLOOMBERG