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Lloyds TSB Sells Abbey Life as Profit, Dividends Rise

British bank Lloyds TSB sold its Abbey Life insurance unit for almost 1 billion pounds ($2billion) and announced on Tuesday a 15% rise in underlying earnings and its first dividend hike in five years.

The bank's upbeat tone lifted Lloyds shares 4.1% to 556.5 pence by 0930 GMT, making it one of the top performing U.K. shares in a firm overall market.

Lloyds said it had agreed to sell Abbey Life to Deutsche Bank for 977 million pounds in cash. It said the closed life insurance business was not a core strategic asset and the sale further improves its capital efficiency.

Britain's fifth biggest bank raised its interim dividend by 5% to 11.2 pence per share, which it said showed it was" increasingly confident in the group's earnings prospects for 2007 and beyond".

Lloyds is Britain's highest yielding bank offering over 6% despite not raising the payout since 2002.

Eric Daniels, chief executive, said the bank intended to increase the dividend and the level of dividend cover.

Lloyds said its profit before tax and volatility in the six months to the end of June was 2.01 billion pounds, up from 1.75 billion a year before and marginally ahead of the average forecast from analysts polled by the company.

"This is the best set of results I've seen out of Lloyds for probably 4 years," Alex Potter, analyst at Collins Stewart said, citing good underlying revenue growth, an improvement inefficiency, and a "relatively small" charge to cover the cost of customer refunds.

Daniels said the results represented the bank's strongest rate of growth in a decade, but he said he remained in the second phase of a 3-phase recovery plan implemented when he became chief executive in June 2003. Phase 3 aims to expand byproduct or geography.

"For the moment we're very content to continue doing what we're doing," Daniels told reporters on a conference call. "Our greatest opportunity is within the franchise still, so we're very firmly in phase 2, we think we've got a lot more opportunity and a pretty clear roadmap to realise it."

Income Growth Ahead

Lloyds said income growth of 9% reflected strong performances from each of its divisions and outpaced cost growth of 6%.

Wholesale and international banking profits rose 12%, underpinned by a 26% rise in its Corporate Markets income, while Insurance and Investments profit rose 7%.

Lloyds said its half-year charge for bad debts rose 5% to 837 million pounds, including a 1% fall in U.K. retail bad debts to 627 million pounds. The U.K. retail bad debt charge in 2007 should be below last year's impairment, the bank said.

It took a charge of 36 million pounds to cover the cost of settling customer claims on bank charges in the last six months, following a surge in customer complaints across the industry.

Weather related insurance claims rose by 57 million pounds in the first half, including 45 million of claims related to flooding in parts of Britain in June, it said.

It said flood-related claims in the second half were likely to be close to the level in June.

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