LLOYDS BANKING FIRST-HALF PROFIT DOWN SHARPLY ON LEGACY CHARGES

Lloyds Banking Group Head Office

LONDON – The Lloyds Banking Group said on Thursday that its profit declined 63 percent in the first six months of the year as the bank was forced to set aside 1.1 billion pounds for a series of regulatory issues.

Lloyds, which is partly owned by the British government as the result of a bailout during the financial crisis, said profit fell to £574 million, or about $971.7 million, in the first half of the year, down from £1.56 billion in the period a year earlier.

Earlier this week, the bank agreed to resolve investigations by the British and United States authorities into the manipulation of rates, including one used to determine fees paid by Lloyds for taxpayer-backed funding during the financial crisis. The quarter included a charge of £226 million related to those issues.

On Thursday, the bank said it had also set aside an additional £600 million to compensate customers who were improperly sold payment protection insurance, a product that has cost British banks billions of pounds in redress. Lloyds has paid out more than £8 billion in claims on the loan insurance so far, and has about £2.27 billion remaining after the latest provision.

“We absolutely want to make Lloyds a company of the highest integrity standards,” António Horta-Osório, the Lloyds chief executive, said in a conference call with reporters.

In the first half, Lloyds posted a statutory profit before tax of £863 million, an important measure for the lender.

On an underlying basis, excluding assets sales and some costs, Lloyds posted a profit of £3.82 billion, up from the £2.9 billion it posted in the first half of 2013. The underlying profit was ahead of analysts’ expectations.

The British government, after providing a £17 billion bailout during the financial crisis, now holds a stake of about 25 percent in the Lloyds Banking Group. Through two offerings, the government hasreduced its stake from about 39 percent, and has done so at a profit. George Osborne, the chancellor of the Exchequer, has said that selling the government’s remaining holding in Lloyds is a priority.

Lloyds said it planned to seek approval in the second half of the year to restart dividend payments to investors.

Net interest income – the measure of what a bank earns on its lending after deducting what it pays out on deposits and other liabilities – rose 13 percent, to £5.8 billion in the first half of 2014 from £5.2 billion in the period a year earlier. The bank’s costs declined 2 percent to £4.68 billion.

The bank’s core Tier 1 capital ratio, a measure of its ability to weather financial disturbances, rose to 11.1 percent at the end of June from 9.6 percent in the first half of 2013.

European banks are required to have a minimum of 4 percent common equity Tier 1 capital under the so-called Basel III regulatory program, but larger banks are required to maintain a higher minimum capital level, which is set by regulators.

Source: The New York Times