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Lloyds bank returns to profit, escapes Barclays-style cash call

Wednesday, 31 Jul 2013 | 10:11 AM ET
Peter Macdiarmid | Getty

U.K. bank Lloyds returned to profit in the first half of the year and indicated that it wouldn't be following in the footsteps of rival Barclays by issuing equity to meet capital requirements set by regulators.

It also indicated that it would be willing to restart paying dividends to investors. The shares jumped to close around 8 percent higher on Thursday.

(Read more: Citi says shun this best-performing bank stock)

The bank reported pre-tax profit of £2.1 billion ($3.2 billion) and said it expected to reach its targets to strengthen its balance sheet faster than it had planned.

It said its core tier 1 ratio was now at 9.6 percent and it expected it to reach 10 percent by year-end, 12 months ahead of plan.

"We are now well on track to create a bank with a leading cost position, lower risk, a lower cost of equity, and products and services focused on our customers' needs, to deliver strong, stable and sustainable returns to our shareholders," Antonio Horta-Osorio, the group chief executive said in a press release on Thursday.

"As a consequence of the significant progress made in strengthening the balance sheet we now expect to commence discussions with our regulators in the second half of this year on the timetable and conditions for dividend payments."

(Read more: Lloyds Stake Earmarked for Retail Investors)

Fellow U.K, bank Barclays announced a cash call on Tuesday, aimed at boosting its capital and meeting another charge for mis-selling payment protection insurance (PPI).

While Lloyds said the volume of PPI claims had declined, it also increased its provisions for PPI by £450 million.

However the bank confirmed on Thursday that it wouldn't need to issue any extra equity or contingent securities.

(Read more: HSBC 'Sneaky' Results Make Lloyds, RBS Worth Buying: Analysts)

Reports by the Financial Times in July stated that the U.K government could be willing to sell part of its £18 billion stake in Lloyds and the sale could start as early as September.

Thursday's turnaround in profit and the drive to restart paying dividends will add to the belief that the U.K. government will be readying to exit.

UBS meanwhile, stated in a research note on Thursday that Lloyds' first-half results ticked all the boxes, with a margin and capital position better-than-expected.

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