Lloyds TSB profit decline rocks the City
Lloyds TSB shocked the City yesterday as it raised its dividend 2 per cent to 11.4p, despite posting a 70 per cent slump in profits.
Pre-tax profits at the high street bank dipped to £599m, compared to £1.99bn last year, reflecting the impact of £585m of write-downs from the bank’s insurance business.
And the bank’s core tier one ratio fell to 6.2 per cent, marginally above what some perceive to be a safe watermark of 6 per cent.
Michael Helsby of Morgan Stanley said that a recession could force Lloyds TSB to cut its dividend by 50 per cent and raise £3.3bn of capital to maintain a 6 per cent ratio.
The increased dividend raised eyebrows among banking analysts who predicted that it could not last, given the turbulent economic conditions.
Sandy Chen of Panmure Gordon said: “Lloyds is trying to grow in a slowing market, and we expect it will get harder to do so.”
Despite predicting growth in the UK economy of just 1.6 per cent, chief executive Eric Daniels said Lloyds was “well-positioned for a lower growth environment.”
The bank’s share of new mortgage lending climbed to 24 per cent, although Daniels said that share would fall.
Impairment charges at Lloyds have soared 31 per cent to £1.1bn, mostly on the back of bad debts in the wholesale and international banking division.
But Lloyds has been more cautious than some other high street banks about taking on bad debt and the results could prefigure even worse news for its rivals.
Chen added: “Given its relatively limited exposure to problem structured credits, Lloyds will probably be the only UK bank where we won’t focus on the potential for further write-downs and rising capital pressures.”
HBOS, Royal Bank of Scotland and Barclays have all gone cap in hand to shareholders to raise capital recently. HBOS announces interim results today.
Lloyds TSB shares closed 15p lower at 305p.