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Lloyds 2012 Income to Decline After Full-Year Profit Slumps

Published: February 24, 2012 | 9:30 am
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Lloyds Banking Group Plc, the U.K.’s largest mortgage provider, said its full-year net loss widened on a weakening U.K. economy, missing analysts’ estimates, and said income will drop this year.

The net loss was 2.8 billion pounds ($4.4 billion) compared with a loss of 320 million pounds for 2010, the London-based lender said in a statement today. That missed the 2.41 billion- pound median estimate of 14 analysts surveyed by Bloomberg.

Income in 2012 “will be lower than in 2011 given the economic outlook,” Chief Executive Officer Antonio Horta- Osorio, 48, said in the statement. The bank “expects the external environment to remain challenging,” he said.

Lloyds, 41 percent-government owned, has cut 42,000 jobs in the last three years and closed overseas units to focus on the U.K. and wean itself off cheap central bank loans. Horta-Osorio, who returned from a nine-week absence for fatigue in January, plans to reduce costs by 1.5 billion pounds. The bank will seek an extra 200 million pounds in cost savings by 2014, Lloyds said today.

Lloyds gained 0.5 percent to 36.75 pence at 8:03 a.m. in London trading.

Mis-sold Insurance

Lloyds in August set aside 3.2 billion pounds to compensate customers who were mis-sold payment protection insurance. The insurance, which covers payments on credit cards and mortgages in case of illness or unemployment, was improperly sold by the biggest U.K. banks. Clients who bought the policies rarely compared prices or terms and sometimes were not covered.

Royal Bank of Scotland Group Plc, Britain’s biggest state- owned lender, yesterday posted a net loss of 2 billion pounds on bad loan provisions in Ireland and insurance compensation.

Total impaired Irish loans increased 13 percent to 16.4 billion pounds compared with 14.4 billion pounds for 2010, the bank said. “Continuing weakness in the Irish real estate markets resulted in a further increase in impaired wholesale loans and coverage in 2011,” it said.

Lloyds results were also eroded by the cost of borrowing as the bank weans itself off inexpensive government loans and replaces it with wholesale funding. Lloyds net interest margin, the difference between what it earns on loans and its funding cost, fell 14 basis points to 2.07 percent. The margin will drop by the same amount in 2012 and be below 2 percent, the bank said.

Horta-Osorio has overhauled management at the bank, hiring George Culmer from RSA Insurance Group Plc to replace Tim Tookey as finance director. Culmer leaves RSA in May, the insurer said yesterday. Truett Tate, who headed the bank’s corporate unit, steps down next month.

The bank in December said it had picked Co-Operative Bank Plc, a customer-owned lender, as the preferred bidder for the 632 branches it’s selling to comply with European Union state- aid rules.

Taxpayers bailed out Lloyds with more than 20 billion pounds in the aftermath of its 2008 purchase of HBOS Plc, the U.K.’s biggest mortgage lender. The government’s break-even price, excluding fees received, is 73.6 pence a share. Lloyds has gained 41 percent this year to 36.58 pence a share through yesterday’s close.

Horta-Osorio said in January he’ll spurn his 2011 bonus given the bank’s full-year loss and his nine-week absence for exhaustion last year. The bank’s former CEO, Eric Daniels, was stripped of 40 percent of his bonus last week, losing about 580,000 pounds worth of deferred stock, as he was penalized for the improper sale of insurance.

Total discretionary bonus awards are 30 percent lower with payments above 2,000 pounds subject to deferral and adjustment, the bank said.


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