Lloyds Banking Group posts biggest profits in 10 years

The chief executive of Lloyds Banking Group insisted he is committed to the lender as the company posted its biggest profits since the financial crisis, marking the culmination of his dramatic turnaround of the business.

The bank, which is today expected to announce the Government has sold down more of its stake, generated pre-tax profits of £4.2bn for 2016, more than double the £1.6bn it reported for 2015 and its best result for a decade.

The Government’s rapidly shrinking stake and the bank’s surging profits under Antonio Horta-Osorio have spurred speculation that the Lloyds chief has finished his overhaul of the once stricken lender. However, the Portuguese executive, who took the helm in 2011, dismissed rumours he might soon leave the bank.

“The job is never done, I’m very happy at Lloyds,” he said.

Lloyds profits were lifted last year after it took a smaller hit from the payment protection insurance (PPI) mis-selling controversy, setting aside £1bn to cover the cost of the scandal compared with a £4bn provision in 2015.

In a further boost to Mr Horta-Osorio, it is expected that the Treasury will today  confirm it has sold off another 1pc of the lender, taking its stake to below 4pc.

When the Government rescued the bank during the crisis it took a 43pc shareholding in the lender in return for £20.5bn of rescue funding. It has been drip-feeding shares into the stock market in recent months and the latest sales will put the Treasury on course to fully return the company to private ownership by May.

The lender has raced ahead of Royal Bank of Scotland, which was also rescued during the crisis but unlike Lloyds is yet to return to profit or resume dividend payments.

The Lloyds recovery has been such that it is back to striking deals again, with its £1.9bn acquisition of Bank of America’s credit card business MBNA in December.

“We have lots of things to do,” said Mr Horta Osorio. “We have the MBNA acquisition to actually close, we have to actually make it happen and deliver the synergies promised to our shareholders.”

Investors were concerned the MBNA deal would force Lloyds to sacrifice a special dividend payment. But the bank cheered shareholders by announcing a 0.5p-a-share extraordinary payment as well as a 1.7p-a-share final dividend.

Together with the 0.85p dividend it announced at its half-year results, it means the lender is returning £2.2bn to shareholders for 2016. The special dividend helped to propel Lloyds shares up 4.4pc to 69.7p today.

Net interest margin, the key difference between the interest the bank pays to savers and the interest it receives from loans, rose to 2.71pc in 2016 from 2.63pc a year earlier, an eight basis-point increase that was bigger than the market had expected.

The smaller PPI provision last year will come as a relief for Lloyds, signaling it is starting to put the controversy behind it. The group’s total bill for the scandal stands at about £17bn, the biggest of any British bank.

In the light of Lloyds’s strong performance last year,  the bonus pool for employees was increased to £392.9m from £353.7m.

However, Mr Horta-Osorio’s total pay package fell to £5.5m from £8.7m a year earlier after a drop in his long-term incentive plan because of Lloyds’s share price weakness in the wake of the Brexit vote.