Lloyds Banking Group (LON:LLOY) said taxpayers have made a near-£900mln profit from the sale of the government’s stake in the lender.
The government offloaded its final shares in Lloyds almost a decade after pumping in £20.3bn to secure a 43% holding in the bank’s bailout during the financial crisis.
Lloyds said in a statement that the successful sale of the stake has returned more than £21.2bn to the taxpayer, including more than £400mln in dividends. This amounts to £894mln more than the government paid for its stake.
Shares rose 2.39% to 71.83p in afternoon trading.
Chief executive Antonio Horta-Osorio said: “Today the government has sold its last shares in Lloyds Banking Group, receiving more money than was originally invested. Six years ago we inherited a business that was in a very fragile financial condition. Thanks to the hard work of everyone at Lloyds, we’ve turned the group around."
Horta-Osorio, who joined in 2011, has led the bank’s successful turnaround by cutting costs, offloading toxic loans and tackling its payment protection insurance mis-selling scandal.
In February, Lloyds reported its highest full year pre-tax profit in a decade and again impressed investors last month with a strong first quarter.
Banks an attractive investment opportunity, says analyst...
Michelle McGrade, chief investment officer at TD Direct Investing, said as Lloyds returns to full public ownership, "banks remain an attractive investment opportunity in the long term and their strong balance sheets should allow them to cope with moderate negative shocks moving forward".
McGrade added: "We expect the sector to provide solid and dependable long-term capital and dividend growth for investors.
"Since the financial crisis, UK banks have been rebuilding their balance sheets and are now returning to form. The health of these businesses is reflected in their dividends, with Lloyds’ dividend yield currently at 3.64% although its share price has come under pressure recently from the government selling down its stake. Whether or not Lloyds’ dividend is sustainable in the long term remains to be seen as it has a dividend cover of less than one, meaning it needs to borrow money to pay its shareholders which might not be appealing to some investors."
Lloyds raised its 2016 dividend by 13% to 2.55p and recommended a special dividend of 0.5p per share, adding that it expects ordinary dividends to increase "over the medium term" with a dividend pay-out ratio of at least 50% of sustainable earnings.
The prospect of a growing dividend has prompted star fund manager Neil Woodford to invest in Lloyds. His Woodford Investment Management business last week announced it had bought a stake in Lloyds, returning banks to its portfolio for the first time in 14 years.
The comany said it views Lloyds as "a well-managed bank with a conservative approach to its balance sheet". "Its valuation looks very attractive in our view, and it has the ability to pay a very healthy and growing level of dividend,” it said.
Horta-Osorio on the hunt for new job?...
With the bank now in good shape and returned to private ownership, rumour has it that Horta-Osorio will start looking for a new job.
Horta-Osorio has been tipped as possible replacement for HSBC’s outgoing chief executive Stuart Gulliver, who departs next year.
However, the chief executive has said there is still plenty of work left to be done at Lloyds as it continues to wrestle its PPI mis-selling saga and the HBOS Reading fraud case.
Lloyds continues to tackle mis-selling and HBOS fraud scandals...
In March it set aside a further £350mln to cover claims for mis-sold PPI after the Financial Conduct Authority extended its deadline for making new complaints to August 2019. The bank’s total bill so far amonts to £17.4bn.
The bank has also set aside a £100mln provision to reimburse victims of fraud at HBOS's Reading branch, in which struggling businesses suffered big losses before Lloyds bought the lender. Six people were jailed, including two former HBOS employees, earlier this year for the fraud.
TV star Noel Edmonds is seeking £73mln in compensation on claims he suffered significant economic losses and damage to his reputation as a result of the HBOS fraud.
Last week it emerged that it also faces a £82mln hit in compensation for investors who were mis-sold investment products as “low-risk” that turned out to be complex and performed poorly.
The bank has written to 7,000 customers holding accounts with Lloyds and its investment arm, Scottish Widows, following complaints over the performance of products sold to them, including the Acorn Market Linked Deposit and Protected Capital Solutions Funds.
RBS a different story....
In contrast to Lloyds, the government still owns more than a 70% holding in Royal Bank of Scotland, which was bailed out at the same time.
Chancellor Philip Hammond has warned taxpayers were likely to make losses when the government starts offloading its interest, as the lender has been less successful than its peers in its recovery.
While RBS last month reported its first quarterly profit since the third quarter of 2015, its results lagged behind Lloyds as it restructures the business and deals with legacy issues.
Last week at its annual meeting, RBS was forced to defend its hefty legal costs and announced it was curbing bonuses to address calls by investors to restrain executive pay.
RBS is being sued by retail investors for allegedly misleading them over its true financial woes during a £12bn rights issue in 2008, which preceded the government's £45.5bn bailout. Legal costs related to the lawsuit were estimated at £6.5mln last year.