Bank profits create dividend boost
Lloyds TSB cheered shareholders with its first dividend hike for five years, as the bank posted a £2 billion profits haul for the first half of 2007.
The UK’s fifth-largest bank, which saw underlying pre-tax profits rise 15% to £2.01 billion, said it was “increasingly confident” about prospects for the year after a strong performance across the group. The bank’s 5% increase in the dividend for the first time since 2002 came as it announced the sale of its Abbey Life business to Deutsche Bank for £977 million.
Analysts praised Lloyds TSB’s “robust” performance and improving cost controls as the firm’s share price jumped by more than 4%. Collins Stewart analyst Alex Potter said: “These interims are some of the most positive Lloyds have posted in years.”
Lloyds TSB’s retail banking operation posted a 13% rise in profits to £803 million, helped by higher income from current accounts, savings and personal lending. The bank also reported a smaller than expected £36 million charge to refund overdraft fees disputed by customers.
The figure contrasts with the £116 million in charges fellow bank HSBC said it had paid out.
The group’s bad debt provisions in retail banking fell by 1% to £627 million after lower levels of customer insolvencies and tougher lending standards.
Mortgage arrears fell in the first half of the year, despite homeowners coming under pressure from higher borrowing costs.
The bank added that it expected overall impairment charges for the full year to be no higher than 2006, although “customer insolvency and interest rate trends remain key factors in the outlook”.
The group’s insurance division posted a 7% boost in profits at its insurance and investments business to £499 million, despite June’s flood chaos in northern England hitting the company’s general insurance operation. The business saw its profits almost halved to £59 million after an extra £57 million in weather-related claims - of which £45 million stemmed from June’s severe flooding.
The group’s wholesale and international banking business also posted a 12% profits hike to £863 million as the company avoided the recent problems in the US which have affected other major banks, including HSBC.