Lloyds TSB, Britain’s fifth-largest bank, unveiled plans to wipe out its £2 billion pensions deficit over the next ten years as it reported a “strong trading performance” for the first half of its financial year.
The bank said that, as well as reaching agreement with its pension trustees to fund the deficit, it would be making additional contributions to the scheme.
It said that, assuming there is no dramatic rise in the contributions it has to make, the deficit of £2 billion for accounting purposes should vanish in ten years, and the actuarial deficit of £1.5 billion should go within about 6 years.
Analysts at Keefe, Bruyette & Woods welcomed the funding, which they said should not have a big effect on the share price today. However, they added: “A structure to resolve the problem is welcome, but the timescale is likely to mean that this will continue to be a more material issue for Lloyds TSB than its peers.”
Advertisement
Lloyds TSB’s plans to tackle the hole in its pensions scheme came as it said the first-half had been strong in all of its business areas.
Eric Daniels, the chief executive, said: “We are delivering against our financial goals while investing in the long-term growth of our business franchises.
“We expect that the result of building better businesses will be sustained economic profits. The group remains on track to deliver a satisfactory performance for the first half of 2006.”
Lloyds TSB shares, which have been buoyed recently by renewed takeover speculation, rose 2.5p to 529.5p in early deals.
The bank said steps it has taken to improve its underperforming retail bank over the past 12 months were paying off, with sales volumes through branches, telephone and internet banking “well ahead” of the same period last year.
Advertisement
Profit margins in insurance and investments are “broadly stable”, while trading in wholesale and international banking - an area the bank has been concentrating on - has “good momentum”, Lloyds TSB said.
Although the bank said revenues would grow more quickly than costs, and cost-cutting should deliver £30 million of savings this year, it said it was still facing “deterioration” in the environment for consumer lending.
Lloyds TSB said it was likely that bad debts in the retail bank will have risen during the first half, but at a slower rate than at the same point last year.
At the same time, Lloyds TSB said the impairment change at the wholesale and international division would be higher than in the first half last year, partly as a result of weakness in its asset finance unit.
For full details on the shares click here