Lloyds posts profit increase, sets TSB IPO date
U.K. banking group Lloyds has reported a rise in underlying profit for the first quarter of 2014 as the company plans to restart dividend payments and divest its TSB banking arm.
The group reported statutory pretax profit of £1.37 billion ($2.31 billion) for the quarter, below a mean estimate of £1.7 billion according to a poll by Reuters. For the same quarter in 2013, that figure came in at £2.04 billion. Last year's figures had included gains from the sale of government securities of £776 million.
However, underlying profit grew 22 percent to £1.8 billion, compared to the same period last year. It added that costs had reduced by 5 percent and impairment charges had reduced by 57 percent.
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George Culmer, the chief financial officer at the banking group, said that the continued progress in reducing balance sheet risk and in strengthening the group's capital and leverage ratios supported it in becoming a "low-risk bank."
"(It is) well positioned to support the U.K. economic recovery. Accordingly, we continue to expect to apply to the PRA (PrudentialRegulation Authority) in the second half to restart dividend payments," he said in Thursday's press release.
Shares in Lloyds Banking Group rose 2.5 percent to 77 pence in early morning trading in London Thursday.
State-backed Lloyds Banking Group swung back into profit last year as the bank and the U.K. coalition government have been working towards another share sale to private retail investors.
It is currently 25 percent-owned by the government after it originally had a 41 percent stake. It needed a £20 billion bailout at the height of the financial crisis in 2008 but the aim now is to sell off the remaining share before the next election in 2015.
Chief Executive Antonio Horta-Osorio has been credited with the turnaround in the the bank's financial performance. The bank has been slimmed down and there has been a focus on domestic retail lending - it has more retail banking customers than any other bank in the U.K.
The plans to apply to Britain's financial regulator to begin paying dividends are expected to make it more attractive ahead of another share sale.
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Its TSB division - a group of retail banks in the U.K. - looks increasingly like it will be sold off. Lloyds said that it is continuing with the plans of an initial public offering (IPO) of the business during the summer of this year, subject to regulatory approval and market conditions. The group added that this float is expected before the end of June 2014.
Commenting after the results, Chirantan Baruan, a senior analyst at Bernstein Research said that the bank's capital build-up - following the financial crash of 2008 - should "basically" be over by 2015 and from there on the bank should be in a position to return approximately 70 percent back to shareholders every year.
"The next 12 months will be a harder grind for management but with U.K. macro tailwinds and an election cycle on its side, we continue to be buyers of the stock," he said. Bernstein confirmed its "outperform" rating on the stock with a target price of 100 pence, up from its current price of 75 pence.