As expected, Lloyds has made a return to the dividend list, after a six year absence, with the announcement of a token 0.75 pence per share final dividend for 2014. It has also reported the highest Tier One capital of the major UK banks so far, at 12.8%, total capital of 22.0% and a cost:income ratio of 51%.
The restructuring of Lloyds continues, with the footprint now having shrunk from thirty nations to six and the run-off asset portfolio almost halving in the year from £33.3bn to £16.9bn. Cumulative cost cuts under the Group's simplification programme are now running at £2.0bn per annum.
Underlying profits have risen 26% to £7.8bn (2013: £6.2bn) and the return that the bank earns on Risk Weighted Assets (RWAs) has improved from 2.14% to 3.02%, allowing the underlying return on required equity to reach 13.6%. Net Interest Margins rose 33bp to 2.45%.
Commenting on the results, CEO António Horta-Osório said "While we recognise we have more to do, we enter the next phase of our strategy from a position of strength. We will remain focused on our customers, embrace the digital age throughout the whole Group, continue our support for the UK economy and aim to deliver strong and sustainable returns for our shareholders."
The Detail: As always with UK Bank numbers, there are complications. Last year, Lloyds booked revenues from its shareholding in St James Place, and TSB was wholly owned, so everything has to be adjusted to get a true like-for-like comparison. But the underlying picture is increasingly healthy. The business has a better balance nowadays, with the Loan to Deposit ratio improving from 113% to 107% during the year, which allowed the reliance on wholesale funding to decline by £22bn to £116bn.
Risk Weighted Assets (RWAs) fell £32bn to £240bn and the leverage ratio, which is a measure of equity as a proportion of gross assets, rose from 3.8% to 4.9%.
Amongst the core divisions, Retail, Commercial Banking and Consumer Finance all grew underlying profits and return on RWAs, but Insurance profitability slipped back reflecting a challenging cocktail of market and regulatory pressures.
Litigation, Conduct and Customer Redress costs continue to be incurred in large measure. PPI compensation provisions rose another £700m in the final quarter of the year, with Claims Management Companies (aka Ambulance Chasers) upping their activity levels, which, if sustained will lead to further provision increases of a similar magnitude. Total PPI provisions made during the year totalled £2.2bn. Other regulatory charges of £925m were incurred for a grim litany of past misdeeds ranging from LIBOR rigging to po
Sometime things have to break to come back stronger. The dividend is a good foundation for future growth. I doubt anyone expected a huge jump in the share price today, but once it breaches the 80 p Mark next week I expect it to stay on that side of the line. Lloyds has once again become an investment which will attract the big spenders. I expect by the middle of the year the government will have off loaded to the pensions companies and the share price will take a steady trip to the northern lights. Patience is still the key word.
Completely agree with your assessment, which was balanced. But some people on here are completely negative about everything, the key question was will there be a divi... Answer yes... Good news. I'm a long term holder, I believe that whilst there are headwinds, overall it will be a good investment and a milestone has been passed. As such the negatives people point out don't bother me as they will dissipate. I'm a realist, I don't expect £1 any time soon and I can't see this ever being more than £1.20 with the number of shares in issue. Who knows? Going forward, If they pay for a holiday each year with the dividend I'm happy. :-)
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