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Lloyds returns £3.2bn to investors as profits soar following return to private sector (LLOY)

Lloyds Bank (LON:LLOY) saw its pre-tax profits climb 24pc to £5.3bn in its first year as a fully private enterprise, although it continues to be dogged by previous scandals. Chief executive Antonio Horta-Osorio hailed a ‘landmark year’ which also saw the firm increase its dividend by 20pc to 3.02p per share and launch a £1bn share buyback programme, equating to a total return to investors of up to £3.2bn. However, the profit figure slightly missed analyst expectations of £5.7bn, due in part to the firm having to put aside an extra £600m in the fourth quarter of 2017 to pay compensation over mis-sold PPI. Regardless, Lloyds’ shares have risen 2pc, or 1.3p, at the time of writing.

A combination of lower costs and higher incomes boosted profits by 8pc to £8.5bn after exceptional items were stripped out. Meanwhile, the firm has managed to cut its cost to income ratio from 48.7pc to 46pc, and said it aims to cut the ratio to the ‘low 40s’ by the end of 2020.

Lloyds, which is Britain’s biggest mortgage provider, also announced a three-year plan to expand its digital services by investing £3bn in new technology and staff. The strategy also includes plans to bulk up its financial planning and retirement arm assets to more than £50bn by 2020 by bringing in more than one million new pension customers. Lloyds also plans to reduce its operating costs to less than £8bn, improve profitability and generate more capital annually over the three-year review.

The additional £600m provision for PPI payments took Lloyds’ total PPI costs for the year to 1.65bn, up from £1bn in 2016. This brings its total bill for past PPI misconduct to more than £18bn. The business put the higher volumes of complaints down to increased claims management company marketing activity and a Financial Conduct Authority advertising campaign featuring Arnold Schwarzenegger.

Despite missing expectations, the profit figure was the largest since the group formed when Lloyds took over ailing rival HBOS during the financial crisis. Shortly after this, Lloyds itself was bailed out in a £20bn taxpayer rescue. This year saw the government finally divest its remaining holdings in the business after eight years. It has been steadily reducing its stake since the crisis.

When Horta-Osorio took over in 2011 the Government owned 43pc of the Lloyds’ shares. In his statement on today’s results, Horta-Osorio said:

‘2017 has been a landmark year for the Group. In May the UK government completed the sell-down of its shares and the Group returned to full private ownership.’

‘We will continue to transform ourselves to succeed in this digital world and the next phase of our strategy will ensure we have the capabilities to deliver future success.’

Horta-Osoria’s pay package for the year increased by 11pc from £5.8m to £6.5m.

Today’s results come just a day after Lloyds’ rival HSBC (LON:HSBA) reported that its pre-tax profit for 2017 had more than doubled to £12.3bn.

Author: Daniel Flynn

Disclosure:

The author does not own shares in the company mentioned in this article

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