Lloyds prepares for £2bn share buyback
Simply sign up to the UK banks myFT Digest -- delivered directly to your inbox.
Lloyds Banking Group is drawing up plans to buy back almost £2bn of its own shares in 2019, double this year’s tally, in a sign of the lender’s confidence in its business despite the uncertain economic outlook.
People familiar with the plan said the UK bank hoped to be able to return roughly £4.5bn of capital to shareholders next year via a higher dividend and a share buyback of almost £2bn. Lloyds declined to comment.
The move comes after Lloyds completed a £1bn buyback earlier this year and reflects the improving fortunes of the lender, which had to be bailed out by the government during the financial crisis.
One person familiar with the plan said it was still at an early stage and would not be finalised until a board meeting in February. They cautioned that any buyback was contingent on the regulator approving Lloyds’ capital plan and said it could be derailed by a hard Brexit that sent the UK economy into a downward spiral.
The plans could also change if Lloyds were to decide to use the capital for acquisitions.
However, Lloyds’ decision to prepare for a buyback at a time when the Brexit talks are entering a tense final stage suggests it is hopeful that Theresa May, UK prime minister, can secure a deal with the European Union.
Earlier this year, António Horta-Osório, the bank’s chief executive, said he was “strongly convinced that there is a strong possibility of a deal being reached by November”.
It is also indicative of Lloyds’ relatively bullish stance on the outlook for the UK if a Brexit deal is reached, with one person close to the bank saying it had yet to see any signs of economic strain.
The capital return plan underscores improving profitability at Britain’s third-largest bank by assets. In August, it reported a more than 20 per cent increase in first-half profits, even as it continued to be hit by compensation payouts to borrowers who were mis-sold payment protection insurance.
The bank’s return on tangible equity in the first half was 12.1 per cent, putting it within touching distance of US investment banks such as Goldman Sachs and Morgan Stanley, which are in much ruder health than UK lenders.
Lloyds also sold its Irish mortgage business to Barclays for about £4bn earlier this year, in a move that freed up capital that could be returned to shareholders.
The bank is due to report third-quarter earnings on Thursday. In a note ahead of the update, analysts at UBS described Lloyds as “undervalued”.
“Lloyds is in our view . . . a strongly capital generative bank, operating with a cost advantage in a competitive market and with decent medium term growth opportunities.”
Comments