London: Lloyds Banking Group rewarded investors with a surprise £2 billion ($2.8bn) payout yesterday, underlining its intent to be the biggest dividend payer among Britain’s banks and its recovery after a state bailout.
Shares in Lloyds gained 13.6 per cent in their best trading day for more than five years as shareholders were reassured by its ability to boost capital and increase dividends in the face of a sluggish economy and record low interest rates.
Despite weaker-than-expected fourth quarter profits of £1.6bn, Lloyds said it would pay a special dividend of 0.5 pence and an ordinary dividend of 2.25 pence a share.
Lloyds, once a darling of the FTSE index for its payouts to shareholders, offered its first dividend in more than six years last year, part of its recovery from a £20.5bn bailout by the British government during the financial crisis.
The bank said it had increased full-year underlying profits by 5pc to £8.1bn, ahead of analysts’ forecasts of around £6.4bn, according to Thomson Reuters data.
The bank’s common equity tier 1 ratio, a measure of financial strength, stood at 13pc after the payout.
It was not all good news for investors, however, with missed cost targets and yet more provisions for its role in Britain’s payment protection insurance mis-selling scandal.
Lloyds delayed its goal of reducing its cost-income ratio to 45pc, from 2017 to 2019, while a return on equity target of 13.5 to 15pc was pushed out to 2018.
The bank also cut its bonus pool to £353.7 million from £369.5m, partly reflecting conduct-related provisions which hit profit and shareholder returns.
Although chief executive Antonio Horta-Osorio’s total compensation fell to £8.5m in 2015 from £11.5m a year earlier, he secured a 6pc rise in his base pay to £1.125m in 2016, his first since joining the board in 2011. He will take part of the increase in shares.
The bank set aside £2.1bn in the fourth quarter to compensate customers for mis-selling loan insurance, bringing to £16bn the total it has had to pay out over policies supposed to protect borrowers against sickness or redundancy but often sold to those ineligible to claim.
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