Lloyds Banking Group is making a £2bn dividend pay-out despite reporting a fall in profit last year after being forced to earmark £2.1bn to cover payment protection insurance mis-selling.
The state-backed bank posted pre-tax profit of £1.6bn for 2015, down from £1.8bn the previous year, writes the FT’s retail banking correspondent Emma Dunkley.
The latest bill for PPI mis-selling takes Lloyds’ compensation pot to £16bn, accounting for almost half the industry’s total PPI provision. The bank’s bonus pool has shrunk to £354m, down from £370m in 2014, to reflect the PPI provision which has “impacted on profitability and shareholder returns”.
The bank revealed a full-year dividend payment of 2.25p per share, amounting to a total payout of £1.6bn. It also unveiled a “special dividend” payment of 0.5p, amounting to £400m, in a boost to income-seeking investors.
The results come only a few weeks after chancellor George Osborne postponed a discounted share sale to the general public in the spring, blaming “turbulent markets”.
Stripping out PPI and other one-off items, the bank delivered underlying profit of £8.1bn, up from £7.8bn in 2014, but slightly below analyst expectations of £8.3bn.
Chief executive António Horta-Osório said: “We made a strong start in 2015 to the next phase of our strategy and have delivered a robust financial performance, enabling increased dividend payments.”
Last July, Mr Horta-Osório said paying a dividend was “clearly more attractive” for a government retail share offering. The government has now sold down its stake in the bank to about 9 per cent.
Investors were hoping for “generous” dividend growth. Eric Moore, an income fund manager at Miton Group, said earlier this week that he was expecting 3p a share for 2015. “Lloyds is in a position now to finally become a dividend machine,” he said.
Jason Napier, an analyst at UBS, said prior to the results that “the bank must not, however, disappoint on 2015 dividends or 2016 payout guidance,” noting that Lloyds is “a dividend not a strong growth story”.
The bank has boosted its capital buffer to 13.9% per cent on a pre-dividend basis, up from 13.7 per cent at the end of the third quarter last year.