Bank of Scotland owner Lloyds says outlook improving as PPI bill dents annual profits

Lloyds Banking Group owns Bank of Scotland, which has been reducing the size of its branch network. Picture: Louise KerrLloyds Banking Group owns Bank of Scotland, which has been reducing the size of its branch network. Picture: Louise Kerr
Lloyds Banking Group owns Bank of Scotland, which has been reducing the size of its branch network. Picture: Louise Kerr
Bank of Scotland owner Lloyds Banking Group has given an upbeat outlook despite seeing its annual profits slump by more than a quarter after a further bill for payment protection insurance (PPI).

The lender, which also owns investment firm Scottish Widows, reported pre-tax profits of £4.39 billion for 2019, down by 26 per cent on 2018. It said the staff bonus pool was slashed by 33 per cent to £310.1 million for 2019 following the earnings slide.

Lloyds’ annual report, released alongside the results, revealed that chief executive Antonio Horta-Osorio’s pay was cut by 28 per cent to £4.73 million for 2019. It also outlined plans to reduce his maximum total payout – including controversial pension payments – from this year as part of an executive remuneration overhaul.

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The group said it did not set aside any further PPI charges in the fourth quarter, after a hefty £1.8bn bill in the third quarter amid a rush of claims ahead of the August deadline.

An estimated 64 million PPI policies were sold in the UK, many in the 1990s and early 2000s. They were intended to cover missed debt repayments and were frequently marketed to consumers using aggressive tactics.

Many banks have been stung by claims in recent years though Lloyds has been the most exposed.


Horta-Osorio insisted the results for 2019 were “resilient”, with underlying profits down just 7 per cent to £7.5bn.

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He said: “In 2019 the group has continued to make significant strategic progress while delivering solid financial results in a challenging external market.

“Throughout 2019, UK economic performance has remained resilient in the face of significant political and economic uncertainty, supported by record employment, low interest rates and rising real wages.

“Although uncertainty remains given the ongoing negotiation of international trade agreements, there is now a clearer sense of direction and some signs of an improving outlook.”

However, the group flagged that it expects to report a return on tangible equity of between 12 per cent and 13 per cent in 2020, against previous targets of 14 per cent to 15 per cent. Its net interest margin - another measure of profitability - is also set to drop this year as challenging retail banking conditions take their toll.

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John Moore, senior investment manager at Brewin Dolphin, said: “Lloyds’ performance is typically a reflection of the wider UK economic situation. Political uncertainty influenced business and consumer confidence last year; yet, despite this challenge, the bank has posted resilient results.

“PPI charges have once again reared their head, but the underlying business appears to be in a decent place. Importantly, in such a difficult environment, Lloyds has continued to deliver a reduction in costs and, as a result, its net interest margin is stable.

“With some Brexit clarity, green shoots of growth in the UK economy, and further cost-cutting, things may start to look up for Lloyds after a difficult time.”

The board has recommended a final ordinary dividend of 2.25p per share, making a total of 3.37p per share for the year, an increase of 5 per cent.