SHARES in Lloyds TSB, the UK’s fourth biggest bank, slid 24p, or 5 per cent, to 459p yesterday after compensation payments hit the group’s half-year profits.
A charge of £300 million to recompense customers who had been mis-sold investment products, plus a loss of £16 million on the sale of its French private banking arm, served to push down interim profits by 18 per cent to £1.6 billion.
As expected, the bank maintained the interim dividend at 10.7p, but it cautioned that this would be kept under review.
Eric Daniels, the new chief executive, reiterated the bank’s plans for organic growth, emphasising that it would be prepared to shed businesses that did not meet its growth targets. Mr Daniels said disposal would be “a last resort”. He added that the bank intended to keep Scottish Widows, the life insurance subsidiary that has been sapping the group of capital, but cast doubt over the future of its offshore and private banking businesses, where earnings are falling.
Mr Daniels highlighted some areas of growth, such as in mortgages where it owns the C&G brand. The bank increased its share of the UK’s new mortgage market to 11.4 per cent from 5.8 per cent a year earlier. In total, the bank lent £4.8 billion during the six months.
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On credit cards, where the bank has revamped its brand, market share increased from 10 per cent to 11 per cent.
Profits from insurance and investments, including Scottish Widows, dropped by £168 million, or 22 per cent, to £589 million. Mr Daniels said that Lloyds TSB was continuing to struggle to sell savings products through its branches, The bank would aim to increase their number.
The group’s net interest margin, a key measure of profitability, narrowed to 3 per cent from 3.27 per cent. Some of the margin decline stemmed from giving its business banking customers interest, after an investigation by the Competition Commission.
Mr Daniels warned that margins would continue to be eroded, adding that the bank expected UK consumer credit growth to slow down in the second half.
The bank confirmed that it had agreed to buy the 70 per cent of Goldfish that it does not already own. It is buying the credit card operation for a premium of £112.5 million.
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What’s hot and what’s not . . .
Lloyds will keep: Scottish Widows; C&G; Lloyds TSB retail brand
Lloyds may sell: National Bank of New Zealand (£2.1bn); Losango, Brazilian consumer finance business (worth $200m); offshore and European private banking operations