Lloyds TSB announces first dividend increase since 2002

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The Independent Online

Lloyds TSB signalled its emergence from years in the doldrums as it announced its first dividend increase since 2002 and a strong set of first-half results.

Britain's fifth-biggest bank increased its interim dividend for the first time since 2002 by 5 per cent to 11.2p a share and said it intended to keep raising the payout as earnings grow.

The bank increased the dividend by an average of 23 per cent a year from 1995 to 1999, making Lloyds TSB the highest-yielding UK bank, but insurance losses forced it to freeze the payout in 2002 and at the time investors feared the bank would be forced to cut it.

"Going forward, the Board expects to grow the dividend, whilst continuing to build dividend cover," said Eric Daniels, the bank's chief executive.

Mr Daniels turned down the chance to cut the dividend early on and instead set about selling non-core businesses in New Zealand and Latin America and brought in fellow Americans to revive the retail and corporate banking businesses.

Lloyds TSB also announced the sale of its Abbey Life closed life fund to Germany's Deutsche Bank for a profit of £290m yesterday. The sale had been expected but Deutsche Bank surprised analysts by paying a hefty price to beat Pearl, the closed-fund specialist run by Hugh Osmond.

Underlying pre-tax profit rose 15 per cent to £2.01bn in the first half of the year, even after it spent £36m on settling claims for refunds on overdraft fees and was hit by a £45m bill for insurance claims from the recent floods.

Lloyds TSB was an investors' favourite in the 1990s and at one point was the world's biggest bank by market value because shareholders liked its focus on low-risk retail and commercial banking. But the bank struggled for growth after it ran out of cost-cutting takeovers when its bid for Abbey National was barred by the competition authorities in 2001.

"The dividend increase has got to be treated as a positive by the market," said a UK banks analyst. "The revenue numbers aren't at the stage where they can shout from the hilltops but they have come a long way from where they were."

Lloyds TSB's income rose 9 per cent to £5.1bn compared with a 6 per cent rise in the first half of 2004 as the retail bank attracted more current account customers and increased sales of life insurance through branches. The bank's shares rose 4.4 per cent to 558p.

Some analysts had questioned whether Lloyds TSB could grow without the international options of rivals such as Royal Bank of Scotland and Barclays. HSBC played up its Asian business on Monday as it said competition in the UK market was a challenge.

Lloyds TSB said the £36m cost of settling claims for overdraft fees covered the payouts and costs involved.

HSBC said it had paid £116m to customers reclaiming fees for unauthorised overdrafts and that it had settled all claims. Mr Daniels declined to say what percentage of claims Lloyds TSB had settled. Customers have sought refunds after campaigners said the penalties were illegal as they exceeded administration costs.