Lloyds profits hit but dividend intact

Lloyds TSB underlined the problems facing the entire UK banking sector yesterday when it revealed that profits fell by nearly a fifth in the six months to the end of June.

Headline profits crept up 5 per cent to £1.67bn. However, Lloyds' shares fell 5 per cent to 459p, making them the biggest faller in the FTSE 100, as analysts pointed out that profits actually fell 18 per cent when one-off costs such as £300m of provisions for mis-selling products were included in the numbers.

Following months of speculation about a dividend cut, the bank held its interim pay-out at 10.7p, but Eric Daniels, who became chief executive of the bank two months ago, left the door open for a decision to slice the bank's £1.9bn annual dividend bill in the future.

"It is very hard to say the board will guarantee it. Any board has to look at earnings, prospects for future earnings and the capital position of the group," Mr Daniels said.

Lloyds, the largest provider of current accounts in Britain with 17 million customers, increased revenues by 2 per cent on a like-for-like basis. The bank confirmed it had taken control of Goldfish, the credit card business, buying the 70 per cent stake it did not own from Centrica for £112.5m.

Mr Daniels said he had three key aims, one of which was "to get growth going again". Reducing earnings volatility and improving profitability are also on his list.

Mr Daniels, who has actually been with Lloyds for 18 months as head of its retail bank, said all of Lloyds' wide-ranging operations were being reviewed to see whether they "meet certain hurdle rates and have a competitive position in their markets".

So far, Mr Daniels has sold off most of Lloyds' interests in France and confirmed that its ownership of National Bank of New Zealand was being reviewed. Mr Daniels tried to scotch rumours that Scottish Widows, the life assurer Lloyds bought for £7bn, might also be on the block. "Scottish Widows is a terribly important part of the group... Its product set is going to be key to serving customers well in future," Mr Daniels said.

Lloyds said it would reserve a further £300m to compensate endowment mortgage customers with legitimate mis-selling complaints and also some of those sold "precipice bonds", geared investment products which have suffered because stock markets have fallen.