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Lloyds spent £2.1 billion on conduct charges last year but is still giving shareholders £2.2 billion
REUTERS/Stefan Wermuth/File Photo
LONDON — Lloyds Banking Group reported a drop in underlying profits and income for 2016 on Wednesday, as well as announcing it spent £2.1 billion on conduct charges last year.
Conduct charges involve money set aside or spent on legal fees, fines, compensation for customers, and admin work related to those issues.
One billion of the total conduct charge amount came from a provision the bank set aside in the third quarter to cover the payment protection insurance (PPI) scandal.
PPI was a form of insurance intended to pay out if consumers failed to make payments on their loans. Many consumers were duped into buying it or did not know how it worked. It was wrongly sold alongside loans, credit cards, and mortgages and banks have been forced to pay out to customers who were wrongly sold the coverage.
Here are the topline numbers from Lloyds' 2016 results:
Underlying profit — £7.9 billion (2015: £8.1 billion).
Total income — £17.5 billion (2015: £17.6 billion).
Operating costs — 3% lower at £8.1 billion.
While underlying profit is down, Lloyds more than doubled its statutory profit before tax to £4.2 billion in 2016. That is because it did not spend as much as it thought it would on the PPI scandal — the £2.1 billion in conduct charges was, in fact, under budget.
Lloyds on Wednesday also confirmed a £2.2 billion dividend payout to shareholders, saying:
"The Board has recommended a final ordinary dividend of 1.7 pence per share, making a total ordinary dividend of 2.55 pence per share, an increase of 13 per cent on 2015 and in line with our progressive and sustainable ordinary dividend policy."
The partly taxpayer-owned bank said in its results that it is focusing on being a low risk model bank. The government has reduced its stake in the lender to less than 5% and recovered 90% of the £20.3 billion it spent bailing Lloyds out in the financial crisis.
"We have delivered strong financial performance in 2016 as we continue to make good progress against our strategic priorities," said António Horta-Osório, CEO of Lloyds Banking Group, in a statement.
"Underlying profit was £7.9 billion and statutory profit has more than doubled to £4.2 billion. We continue to improve our customers' experience, simplifying the business whilst growing in targeted areas and in December announced the acquisition of MBNA's prime UK credit card business.
"Strong capital generation, which is a consequence of our business model, has enabled us to fully cover the expected capital impact of the MBNA acquisition, increase our ordinary dividend by 13 per cent and pay a special dividend. As a simple, low risk, UK-focused bank we are committed and well positioned to help Britain prosper and become the best bank for customers and shareholders."
There was no mention of how the bank views Brexit in the results or any discussion of selecting a European base, in the event of Britain splitting from the European Union. On February 14, a report claimed that Lloyds was close to selecting Berlin as a European base to secure market access to the European Union when Britain leaves the bloc.
The report said that it is currently examining steps to turn its branch in the German capital into a subsidiary and may apply for a licence to do so later this year.
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