Lloyds' pre-tax profits rose 29 per cent to pounds 1.03bn, and it increased its dividend by 20 per cent to 22.1p, both in line with expectations.
Sir Robin Ibbs, chairman, said: 'By the end of the year, it was clear that the UK was moving out of recession.' This enabled the bank to reduce bad debt provisions and turned a loss of pounds 32m in UK retail banking into a profit of pounds 74m, an 'encouraging turnaround.'
Provisions for bad and doubtful debts fell 10 per cent to pounds 503m. In UK retail banking, provisions fell more steeply, from pounds 506m to pounds 389m.
Union leaders demanded that Lloyds break its pay freeze and spend some of the profits on staff, who have not had an across-the-board pay rise for two years.
'Shareholders have done very well out of Lloyds' recovery - now it's the turn of staff,' Rob O'Neill, assistant secretary of the Banking Insurance and Finance Union, said.
Lloyds' costs grew by pounds 32m over the year despite tight controls, and keeping costs down would continue to be a priority, Sir Robin said. Lloyds slimmed its workforce by 2,000 from 51,700 through natural wastage. The chairman would not be drawn on how many jobs will go this year, although there will be losses. 'There will be nothing violent or sudden,' he said.
The results benefited from a pounds 67m improvement in profits to pounds 260m from the bank's problem country debt (PCD) portfolio, following a successful deal involving its Argentinian loans.
Brian Pitman, chief executive, said: 'The surplus of market value over net book value of our total PCD portfolio was over pounds 1bn.' Prudent management meant this surplus would be a source of profits for some years to come, he said.
Commenting on market speculation that Lloyds will try to make a big acquisition following the failure of the Midland bid and the strengthening of Lloyds' capital position, Sir Robin said: 'We remain watchful for further opportunities to participate in the restructuring of the industry, at home and abroad, that would enable us to build on our skills and strengths.'
Mr Pitman was confident about the acquisition of the Rural Bank in New Zealand last year by the National Bank of New Zealand, a wholly owned subsidiary. He described New Zealand as a model economy that showed the full benefits of low inflation.
Good performances from Lloyds' subsidiaries in South America and Germany helped international banking to raise profits by 76 per cent to pounds 153m.
Corporate banking and treasury increased profits by 38 per cent to pounds 230m. Lloyds expanded its derivatives activities, particularly market- making in interest rate derivatives. This drove up loans and advances to banks, mostly short-term, from pounds 6.2bn to pounds 13.1bn.
Abbey Life's contribution to profits increased by 9 per cent. Mr Pitman said there had been a big increase in loan demand from personal customers, but no real upturn in demand from small businesses. And since corporate customers had benefited from rights issues and debt-raising activities, their demand for bank loans had actually dropped. Mr Pitman stressed the benefits of falling bad debts and the falling costs of servicing pounds 4bn of non-performing loans. In future, income growth would come from investment products, insurance, private banking and capital markets, he said. Tight cost control would continue. Lloyds' shares rose 2p to 617p. Bifu said: 'Our message from branches is of over-stretched staff trying to cope with constant reorganisation. This is not the best climate to give customers the service they deserve.'
The bank has introduced performance-related pay, but Bifu has opposed the move and will soon submit a claim for a general pay rise for the bank's staff.
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