Sir Brian was speaking after Lloyds TSB announced record interim profits of pounds 1.5bn, a third higher than the pounds 1.1bn achieved in the first six months of 1996. Thanks to the recent acquisition of the minority shareholding in its Lloyds Abbey Life insurance operation, earnings per share rose even more quickly, up 49 per cent to 20.4p.
The bank's shares soared 60.5p to 736p as the market digested the results, which were at the top end of expectations, and a 26 per cent jump in the half-time dividend to 5.3p. Analysts focused on a sharp rise in the bank's return on equity to 40.4 per cent, driven, Sir Brian said, by rising income and a continuing fall in the bank's costs.
Lloyds TSB has been one of the biggest beneficiaries of the market's upward re-rating of the financials sector over the past year. The bank's shares traded at just 315p at the end of June 1996, less than half their current level. The market value of Lloyds TSB has risen during that period from pounds 16bn to almost pounds 40bn.
The ratio of costs to income at Lloyds TSB fell from 57.7 per cent a year ago to 51.1 per cent and Peter Ellwood, chief executive, said he would be disappointed if that proportion did not fall further as the full benefits of 1995's merger with TSB flowed through. He added that the combined group was well on track to achieving the pounds 400m of savings it had promised by 1999.
Asked whether Lloyds TSB's acquisition ambitions might include an investment bank, Sir Brian retorted: "not a hope. I wouldn't touch one with a barge- pole." Unlike its high street rivals Barclays and NatWest, Lloyds has long espoused a focus on retail banking where it has been able to earn high returns without the perceived volatility of investment banking.
Retail financial services produced the lion's share of first half profits, pounds 962m compared with pounds 794m a year ago. Profits from mortgages were 18 per cent higher at pounds 293m, while retail banking rose 44 per cent to pounds 441m. Although slightly lower at pounds 228m (pounds 239m), the insurance result included a pounds 50m provision to cover the rising cost of the pensions mis-selling scandal, bringing the total set aside to pounds 250m.
Mr Ellwood said Lloyds was spending pounds 100m on its computer systems and he was confident Lloyds' systems would be "millennium-proofed" by the end of 1998.