Lloyds signals banking recovery after huge transition from loss to £2.1bn profit

Better than expected results for year so far could see Government cash in on taxpayers' 40% stake

Lloyds Banking Group swung out of the red with half-year profits of £2.1bn (AFP/Getty Images)

Lloyds Banking Group showed impressive signs of recovery as it recorded a profit of £2.1 billion for the year so far, representing a major turnaround for the taxpayer-backed bank since losses of more than £450 million for the same period last year.

The results beat expectations, including a 43 per cent reduction in bad debts and a significant overall reduction in costs, and sparked speculation that the Government could now sell its 39 per cent stake in the group.

Shares jumped up in value around 8 per cent in trading on Thursday morning, climbing even higher than the average price of 73.6p that the taxpayer paid in the £20 billion bailout of 2008.

Chief executive António Horta-Osório said Lloyds was working to “support the UK economic recovery”, and added: “The share price is now in a position where the government can return taxpayers’ money at a profit.”

Mr Horta-Osório said it was up to the government to decide “when and how” it started to sell its stake.

A Treasury spokesperson told the Telegraph: “Today’s half-year results show that Lloyds continues to make progress towards becoming a stronger and safer bank.

”The government has set out its plan to take Britain’s banking system from rescue to recovery. As part of this, we have said that we are now actively considering options for sales of the taxpayer’s shares in Lloyds.

“We have also consistently said we have no set timetable or target share price for beginning the return of Lloyds to the private sector, and ensuring value for money for the taxpayer will continue to be the overriding consideration for any sale.”

In another sign of good health for the group, Lloyds said it would start making plans to issue dividends to shareholders, and would begin discussions on the matter with regulators in the coming months.

Lloyds has not paid a dividend since the 2008 bailout.

It wasn’t all good news for the taxpayer-backed bank, however. Compensation settlements and fines for miss-sold Payment Protection Insurance continued to impact on the company’s profit margins, and it was forced to set aside another £450 million to deal with claims, taking the overall cost of the legal actions to £7.3 billion.

Despite saying “the volume of PPI complaints has continued to fall in line with expectations”, Lloyds said the cost of settlements was “higher than expected”, as more and more cases are concluded.

The bank also had to put aside £50 million to prepare for an investigation by the Financial Conduct Authority, after it was accused of delaying replying to claims in the hope they would be dropped.

Nonetheless, today’s financial results were largely positive, and Mr Horta-Osório said: “In the two years since we set out our strategic plan to become the best bank for customers, we have transformed the group with increasing momentum.

“As a result of the work we have done, our performance is not only much improved, but is now more stable and resilient.”