Lloyds posts best profit in a decade as PPI bill falls
Lloyds Banking Group shares were up close to four per cent in early trading in London after it posted its best profit for a decade.
Pre-tax profit for 2016 came in at £4.2bn, up 158 per cent compared to 2015 and "a level last seen in 2006 before the financial crisis", says the BBC.
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This was largely the result of new provisions for payment protection insurance mis-selling falling from £4bn to £1bn.
At £17bn, Lloyds has racked up the biggest bill of all banks for the scandal. But applications for compensation now have a deadline of 2019 and bosses hope they have set aside the amount they need to handle future claims.
However, while headline performance was strong, Lloyds' profit still undershot analyst expectations for pre-tax earnings of £4.4bn, says the Financial Times.
Moreover, underlying operating profit fell from £8.1bn to £7.9bn, reflecting the ultra-low interest rates that weigh on banks' net interest margins - effectively their profit margin.
Lloyds' impressive share price performance this morning - at 69.3p, it was higher than at any point since the EU referendum last summer - may instead be related to a boost to investor payouts.
The FT says the bank has included a special dividend to its annual distribution, boosting the total by around 20 per cent to £2.2bn. This has been made possible by a continuing improvement in its capital position, with its core reserves up from 13 per cent to 13.8 per cent and well above the regulatory minimum.
Richard Hunter, head of research at Wilson King Investment Management, said Lloyds has become "something of a modern day success story in the aftermath of the financial crisis".
He added: "Historically low interest rates will… continue to provide a difficult backdrop for banks in general, whilst the cost or regulation… will be a necessary cost of doing business.
"Even so, the overall picture is one of robust recovery for Lloyds, where the share price has enjoyed a strong run of late, having added 21 per cent over the last six months alone."
Lloyds eyes up Berlin for post-Brexit EU base
Lloyds Banking Group is lining up Berlin for its post-Brexit European headquarters, says Reuters, defying a wider trend among its peers.
Britain's expected departure from the single market, which most believe will come at the cost of the right for London-based firms to trade freely across the EU, means big banks are seeking to set up hubs on the continent.
Some already have fully licensed subsidiaries in EU financial centres from which they can continue to serve European clients.
HSBC has said it could move 20 per cent of its London operations and more than 1,000 jobs to its European HQ in Paris, while Barclays says it will move some activities, but considerably fewer roles, to its existing base in Dublin.
Another popular prospective location - in fact, the one cited most often by global banks looking to shift jobs and assets from London after Brexit - is Frankfurt, the main financial centre in Germany.
Lloyds is thought to be the first bank considering Berlin as its European base.
The bank is in a unique situation relative to its peers, however, in that it "is the only major British retail lender without a subsidiary in another EU country", says Reuters.
It operates in Germany under the Bank of Scotland banner and has a regional headquarters in the capital, "with a full management team in place, including the finance, risk and human resources staff required of a full subsidiary".
"The Berlin branch would only need to change the status of those roles to meet legal requirements… rather than having to transfer more people," sources told Reuters.
That will please the UK government, as it would calm fears that huge swaths of business and tax revenue will be lost to the continent from one of the UK's most powerful sectors.
Government sells £470m Lloyds stake and cedes top spot
Taxpayers are no longer the largest shareholder group in Lloyds as the bank continues its march towards full privatisation.
Since taking over the Treasury last summer, Chancellor Philip Hammond has restarted a programme of "drip-feed" share sales to big institutional investors, such as pension funds and insurers.
Divestment of the government's shareholding, which peaked at 43 per cent following the £20.3bn rescue of the bank at the height of the financial crisis, had been paused after Lloyds' share price dropped below the average bailout buy-in price of 73.6p.
Yesterday's sale of approximately one per cent of the bank's shares was priced at around 66p and takes the publics' stake to below six per cent. Global asset management company BlackRock has now become the bank's largest shareholder.
Having sold much of its shares at well above the break-even price, the government will make a profit even if it sells all its remaining stock at a loss.
Its latest share sale was worth around £470m and takes the total raised so far, including dividends, to more than £18bn, says Sky News. If all the shares the Treasury still owns were sold at the same price, this would add at least another £2.5bn.
Previously, around £2bn of shares were meant to be sold at a discount to their market value to ordinary investors, but this plan was scrapped by Hammond in favour of a quick privatisation at the best possible price.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: "Retail investors had the disappointment of being denied involvement in a Lloyds share sale, although there is still time and plenty of opportunity to rectify this."
Lloyds pays £1.9bn for credit card provider MBNA
Lloyds Banking Group has finally struck a deal to buy Bank of America's UK credit card business, MBNA, for £1.9bn.
Executives at the bank said the move would bring £650m in annual revenues and that it should be possible to cut £100m in costs through synergies within two years, says The Guardian.
They added that MBNA generated £123m of pre-tax profit in the first half of the year and that the new business will boost the group's market share in the credit card sector from 15 to 26 per cent.
MBNA will continue to operate under its own brand and offer separate interest rates to Lloyds' own-brand credit cards, the BBC adds.
The Financial Times says the bank had been effectively prevented from seeking acquisitive growth since its £20bn taxpayer bailout in 2009, which followed a government-facilitated merger with HBoS.
Lloyds has returned to profit in the past two years and is now generating surplus income, which it must "either invest or return to shareholders".
Like its peers, the bank is also seeking ways to boost its margins amid an ultra-low interest rates environment that is squeezing profits on lending. Credit cards offer much more lucrative margins.
Joseph Dickerson, a banking analyst at Jefferies, told the Guardian the deal was "a very good use" of Lloyds' excess capital and that the terms looked attractive.
The sale process began in May, although some felt it would be derailed by the Brexit vote in June, which is expected to hit the UK economy and undermine confidence in the banking sector.
However, it became clear last month that Lloyds was emerging as the frontrunner to secure the transaction.
News of the buyout saw Lloyds' shares rise 2.8 per cent to 64.3p.
Lloyd's latest share sale brings full privatisation closer
A full privatisation of Lloyds Banking Group came another step closer yesterday with the sale of a further one per cent worth of taxpayer shares.
From a peak of 43 per cent, the government's stake has now been reduced to a shade below seven per cent.
Sky News says the sale raised around £400m, taking the total return so far on the public investment to £17.5bn. The then Labour government bailed out the bank in 2008 for a total of £20.3bn.
At one time, the Tory government was determined not to sell shares below the bailout average price of 73.6p per share. It also planned to sell around £2bn worth of them at a discount to the public.
However, after shares spent months trading below this level, Chancellor Philip Hammond announced in the summer he would abandon both pursuits. Prices were hovering around 61p yesterday.
Shares are now to be sold as soon as possible as long as the overall proceeds at least return the full amount invested.
At the current price and based on the value of yesterday's disposal, a sale would take the total return to almost £20.3bn.
In August, Hargreaves Lansdown said that once certain fees and dividends were accounted for, the government valued its net investment at 62p per share, only 1p below its most recent sale price.
On these terms, the government could sell its remaining stock at a fraction of its current price and still break even on the investment as a whole.
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