Lloyds Banking Group PLC (LSE:LLOY) profits declined in the fourth quarter of 2023 as it made a £450 million provision to cover potential costs of a motor finance probe, but the dividend was hiked 15% and a £2 billion share buyback is planned after a strong year.
The UK’s largest lender reported underlying pre-tax profits of £1.75 billion for the final quarter of the year, down 14% from the third quarter but in line with City estimates.
With the provision made to cover the potential impact of the recently announced Financial Conduct Authority review into motor finance commission arrangements, total provisions were £675 million in the year, while impairments of £308 million were much lower than the £1.5 billion a year ago.
The FCA has also opened an investigation into Lloyds' money laundering controls, the lender also revealed, though no extra provision was announced.
But profits in the quarter were boosted by a £541 million credit relating to a significant write-back following the full repayment of debt from a single-name client, thought to relate to the Barclay family's ownership of the Daily Telegraph, which if excluded meant that Q4 underlying profits came in at £1.2 billion, down 45% on the Q3.
For the full year, profits came in at £7.8 billion, up 11% on the previous year and matching analyst expectations.
The board recommended a final dividend of 1.84p per share, resulting in a total of 2.76p for the year, up 15%.
Given the bank's strong capital position, with £31.9 billion of common equity 'tier 1' capital for a ratio of 13.7%, the board announced plans for a buyback of up to £2 billion.
This puts total capital returns for the year at £3.8 billion, equivalent to 14% of the bank's market cap.
Chief executive Charlie Nunn called it a "robust financial performance, meeting our 2023 guidance, driven by income growth, cost discipline and strong asset quality".
He said: "2023 was a critical year in building towards the ambitious strategy we announced two years ago, as we look to grow our business and deepen relationships with our customers.
"As demonstrated in our recent strategic seminars, we have made significant progress and are on track to meet our 2024 and 2026 strategic outcomes, helping us build towards higher and more sustainable returns."
Shares in the bank fell in the first half-hour of trading, down 1.7% to 42.54p.