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Lloyds applies for licence to open Berlin subsidiary amid Brexit as it reports full year results

Last updated: 16:15 22 Feb 2017 GMT, First published: 15:47 22 Feb 2017 GMT

Lloyds
Lloyds to open Berlin subsidiary amid Brexit

Lloyds Banking Group plc (LON:LLOY) has launched an application in Germany to set up a subsidiary in Berlin to secure market access to the European Union once the UK leaves the bloc.

In a press conference following the lender’s results, chief executive Antonio Horta-Osorio confirmed media reports last week on the group's plans to expand in Berlin and elaborated on his post-Brexit strategy. 

The bank will convert a branch in Berlin, where Lloyds already has roots, into a subsidiary and has put forward an application for a licence.

The board assured the move would not incur significant costs, nor see a mass export of jobs, and it will continue to focus its operations in the UK.

On the potential affect Brexit may have on the business, Horta-Osorio told reporters: “Overall we don’t see any significant impact of the referendum going forward."

He said while there had been some hold up in investments since the Brexit vote last June, the UK economy had performed better than expected and consumers’ behaviour had not changed.

Horta-Osorio, however, cautioned that the bank’s performance was closely tied with the UK economy, where 97% of its business is focused. He also warned the economic outlook was uncertain as the UK’s future relationship with the EU remains unclear.  

“The performance of the company will depend on how well the economy performs,” he said.

Read: Lloyds announces special dividend as full year pre-tax profits more than double

Official data today showed gross domestic product (GDP) in the fourth quarter rose 0.7% compared to the previous three months, revised up from a preliminary estimate of 0.6%. Third quarter GDP increased 0.6%.

The Office for National Statistics, however, cut its forecast for 2016 growth to 1.8% from a previous estimate of 2% amid weaker North Sea oil and gas production.

Lloyds’ board stressed that its strong capital position puts it in good stead for future hurdles, including any hit from Brexit to the UK economy and regulatory changes.

The removal of “toxic assets”, net debt and payment protection provisions (PPI) charges will also ward the company off the impact possible external risks.

The company also sees the acquisition of MBNA’s credit card business offering a 17% return on investment after two years. Horta-Osorio said the group has no immediate plans for further acquisitions.

As for his own personal plans, Horta-Osorio suggested he would remain at Lloyds as there was “plenty more work to be done”, including the continued digitisation of the bank and a third strategic plan to be announced at the end of the year.

“I’m very happy at Lloyds and very happy with the team,” he told the press.  

Horta-Osorio made headlines in late 2011 when he decided to take three months of stress leave.

Speaking on behalf of the chief executive today, chairman Norman Blackwell dismissed questions about his time out. “We dealt with this at the time and that matter is closed”.  

Lloyds reported its highest full year pre-tax profit in a decade today as it avoided taking another PPI for the final quarter.

Watch: A robust performance from Lloyds, reckons Hunter

Statutory pre-tax profit was £4.2bn in the year to 31 December 2016, more than double the £1.6bn recorded a year earlier. The FTSE 100 lender raised its total ordinary dividend 13% to 2.55p from 2.25p and recommended a special dividend of 0.5p per share.

PPI for the year fell to £1.0bn from £4.0bn in 2015, helping to lift the common equity tier 1 ratio (CET1) to 13.8% at 31 December from 13.0% the same time the prior year.

The provisions meant the bank cut 19% off its bonus pool to £393mln, though it was 11% higher than last year. Horta-Osorio was paid a total £5.5mln for 2016, compared to £8.7mln, due to the decline in the bank’s share price following the Brexit vote.

Despite the jump in statatory pre-tax profit, underlying profit dropped to £7.8bn from £8.1bn, reflecting an increase in impairment charges to £645mln from £568mln.

The taxpayer owns 5% of Lloyds after the government sold off shares following its bailout during the 2008 financial crisis.

Shares in the bank rose 3.34% to 69.67p in afternoon trading. 

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