Lloyds plunges to £3.5bn loss for 2011
Lloyds Banking Group has painted a subdued outlook for the UK economy as the bailed-out bank revealed it had plunged to a £3.5bn loss in 2011 and would pay out £375m in bonuses.
The chief executive, António Horta-Osório, said the prolonged low interest rate environment would mean some key targets would not be met on time, but the bank would benefit from a faster than expected reduction in impairment charges during 2012.
Some 30,000 jobs have already gone as a result of the rescue takeover of HBOS in September 2008 and Horta-Osório earmarked a further 15,000 reductions when he took over a year ago. But the bank stressed that a further £200m of cost savings for 2014 would not result in further redundancies, with 3,700 of the 15,000 roles already removed.
Horta-Osório returned to work last month after a two-month absence brought on when he could not sleep for five days in October.
At 35.6p the shares were among the biggest fallers in the FTSE 100, down 2.4%. The drop has left the taxpayer with a £10bn loss on the 41% stake in the bank amid concerns about its forecasts this year for profitability, measured by so-called net interest margin.
Horta-Osório’s predecessor, Eric Daniels, bowed out last February claiming a £2.2bn profit for 2010, on what was his preferred “combined” measure of the business that was intended to strip out the costs of the takeover. The 2011 loss of £3.5bn compares with a profit of £281m a year ago, while on Daniels’ measure the profits were up 21% at £2.7bn.
The loss on a statutory basis had been expected. At the interims Lloyds reported a £3.3bn loss when the £3.2bn provision for payment protection insurance (PPI) knocked performance.
Daniels is now having 40% of his £1.45m bonus for 2010 clawed back because of the impact of the PPI provision. Tim Tookey, the finance director, is losing 25%. He leaves the bank on Friday without any start date yet arranged for his successor, George Culmer, who is quitting insurer RSA in May.
Tookey said he “completely respected” the decision of the Lloyds remuneration committee to reduce his 2010 bonus, while Horta-Osório said his previous employer, Santander, which also took a hit for PPI mis-selling during his tenure, had not notified him of any intention to claw back bonuses he may have received.
As owner of the country’s largest lender, Halifax, Lloyds expects house prices to remain “broadly flat” for the next two years and the economy “uncertain”. It expects further weakness in 2012 and “fairly modest” growth in the second half. GDP will be “broadly flat” for the year as a whole, with base remaining at 0.5% into 2013 and unemployment rising and then peaking at 9% next year.
The targets for return on equity – to achieve up to 14.5% – will be delayed beyond 2014 and income will be lower this year than last. However, the bank will deliver its balance sheet, cost and impairment targets in 2014, and in some cases sooner.
The £375m bonus pool is down 30% on a year ago and the executives are taking an average 50% cut to their bonuses. The average bonus across the 100,000 workforce stands at £3,900.
The performance conditions for the three-year long-term incentive plan will have targets such as customer performance added to them on top of conventional shareholder return targets.
Three years on from the rescue takeover of HBOS, the bank has achieved its target to save £2bn a year – which suggests that integration bonuses put in place at the time of the deal will pay out.
While the European commission restriction on paying dividends, put in place at the time of the taxpayer bailout, has now been lifted, the bank admitted it was unclear when it might be able to start doing so.
The bank also revealed the FSA enforcement investigation into the corporate division of Bank of Scotland was ongoing. It could lead to fines and reprimands.
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