Lloyds Banking Group PLC (LON:LLOY) shares rose on Wednesday even though the lender's 2018 profits missed forecasts after a weak fourth-quarter as it still increased its dividend and announced a £1.75bn share buyback.
The FTSE 100-listed bank reported statutory profit after tax of £4.4bn for the year to 31 December 2018, below the consensus estimate of £4.6bn but up 24% on 2017’s £3.5bn.
Britain's biggest mortgage lender saw its net income rise by 2% in 2018 to £17.8bn, with its net interest margin higher at 2.93%.
The group said its operating costs fell year-on-year despite increased investment, while its cost:income ratio further improved to 49.3% with positive jaws of 5%.
But for the fourth-quarter, Lloyd’s statutory profit after tax halved to £736mln, down from £1.47bn, while net income was flat at £4.35bn.
Provisions for payment protection insurance (PPI) compensation also continued to be made, with the company setting aside another £200mln in the fourth-quarter, having not made any further provisions in the third-quarter.
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António Horta-Osório, the bank’s group chief executive commented: “2018 has been a year of strong strategic and financial delivery, as we build on our unique capabilities to transform the Group to succeed in a digital world.
“We have made significAnt progress against the priorities we set out at the start of the year when we launched the third stage of our strategic plan, which is supported by investment of more than £3bn over the plan period.”
Lloyds said it will pay a total ordinary dividend for 2018 of 3.21p per share, up 5% on 2017.
The company also proposed share buyback of up to £1.75bn representing a total capital return for 2018 of up to £4.0bn, an increase of 26% from 2017’s £3.2bn figure.
In early morning trading, Lloyds shares were 2.7% higher at 59.95p.
Richard Hunter, head of markets at interactive investor, commented: “Despite missing expectations at a pre-tax profit level, Lloyds is not only in rude health but also has a clear vision on where next to take the business.”
He added: “The tight control of the business has also enabled a share buyback of £1.75 billion, alongside a dividend yield of 5.4%, both of which signal management confidence in prospects.”
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