Lloyds Banking Group is “back in the black” as it posts profits of £2.1bn for the first half of 2013 – sparking a surge in share price and expectations of a government sale of its stake in the bank.
In its half-year accounts, Lloyds said it achieved the profits, which compare with losses of £456m a year earlier, by cutting costs, reducing bad debts, and increasing income.
However, the group, led by chief executive Antonio Horta-Osorio, revealed that it had increased the funds set aside to cover compensation for mis-selling of payment protection insurance to £450m from £250m.
It was also announced that the bank is under investigation by the Financial Conduct Authority (FCA) over its management of a supplier and PPI complaints handling procedure.
Lloyds – which was fined £4.3m in February after up to 140,000 customers had their PPI compensation payments delayed – said it was “disappointed” by the FCA probe. It has set aside £50m to cover administration costs for the investigation.
“We will work with the FCA to resolve the issues and ensure our customers’ complaints are addressed efficiently and fairly,” the bank said.
Other details that emerged in the report included the toll that has been taken, through cost-cutting measures, on Lloyd’s workforce. Around 2,700 jobs have gone at the bank since the start of the year.
Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said today’s half-year figures “have beaten expectations on most counts”, but added: “The latest increase to the PPI provision is a reminder that there could be further legacy issues to come and the banks in general continue to chase a final end to the PPI chapter.”
Last month, George Osborne paved the way for selling the government’s 39 per cent stake in the bank back into the private sector.
In his annual Mansion House speech, he said the government was “actively considering options” for a sale of shares, adding “Lloyds is in a good position.”
One of the reasons for Lloyds improved performance was a return to “core lending growth” in the first half of the year – driven by a 5 per cent increase in lending to small and medium sized business.
Gross new mortgage lending stood at £14.5bn in the first six months, up from £12.3bn a year earlier. Lloyds said the government’s Help to Buy scheme, aimed at getting more people on the housing ladder, should help boost this figure further.
Mr Horta-Osario also said the bank would unveil its rebrand of 631 branches nationwide as TSB Bank on September 9 – a campaign costing £30m.
The rebrand is taking place because a deal to sell the branches to the Co-operative Group fell through. Following the rebranding, the TSB business will be floated on the stock exchange.
Mr Horta-Osario said the bank had been “transformed… with increasing momentum, reshaping the business to focus on our core UK franchise, significantly reducing costs and risk, and simplifying and improving our service, products, and processes.”
Lloyds’ shares leapt 6 per cent to just under 73p on the London Stock Exchange in early trading.