Lloyds Banking profit jumps to $7.4 bln but misses estimates

By Emma Rumney and Lawrence White

LONDON (Reuters) - Lloyds Banking Group reported its highest pre-tax profit since 2006 on Wednesday and announced a share buy-back of up to one billion pounds and 3 billion pounds of strategic investment over the next three years.

The 24 percent rise in profit to 5.3 billion pounds ($7.4 billion) beat last year's 4.2 billion but fell short of the 5.73 billion expected by analysts in a poll provided by the bank.

Chief Executive Antonio Horta-Osorio said 2017 had been a "landmark year" for the group, which returned to full private ownership for the first time since 2008, when it was the subject of a bailout by taxpayers worth some 20.5 billion pounds.

 

"Our management team's discipline and rigorous execution has enabled us to deliver superior profits and returns, ahead of our peers," he said in a presentation to journalists.

Lloyds shares opened up 2.5 percent but lost ground as investors digested the slightly weaker-than-expected performance and news that Lloyds had taken a charge of 600 million pounds to compensate customers mis-sold payment protection insurance (PPI) as part of Britain's costliest financial scandal.

The charge took the bank's total PPI costs for the year to 1.65 billion pounds. At 1003 GMT the bank's shares were up 1.6 percent.

With dividends up by a fifth to 3.05 pence, some analysts were optimistic that the UK's largest mortgage lender would reward those investors who had kept faith with the bank's earnings potential despite the regulatory hits.

"There's a lot to like in Lloyds' numbers, with profits rising, costs under control, and prodigious amounts of cash being thrown off to shareholders," Laith Khalaf, senior analyst at Hargreaves Lansdown, said in a note.

"With more rate rises waiting in the wings, this looks like a tailwind that's going to be blowing behind Lloyds for the foreseeable future."

STRATEGIC AMBITION

The bank's planned 3 billion pounds in strategic investment will be spent mostly on staff and ensuring the bank is ready to adapt to the digital age.

This responds to new regulation forcing big banks to open up their customer data to rival lenders and financial technology firms with far lower cost bases, enabling them to compete more effectively for customers.

The bank said it will revamp its app and digitise 70 percent of its processes by 2020, enabling it to lower its cost income ratio to the low 40s from 46.8 percent in 2017.

Lloyds said it remains committed to maintaining the largest branch network in the UK, which will be more focused on complex customer needs such as mortgages, but refused to define the impact efforts to streamline the bank would have on headcount.

It also plans to ramp up its financial planning and retirement business, increasing open book assets by 50 billion pounds by 2020 and expanding its corporate pension customer base by 1 million mainly through organic growth, although it said small insurance acquisitions would be considered.

The bank raised CEO Horta-Osorio's pay package by 11 percent to 6.42 million pounds ($9 million) in 2017 and boosted the total staff bonus pool by 5.5 percent to 415 million pounds.

Horta-Osorio said that while Britain was facing a period of political and economic uncertainty, the economy was resilient and the bank expected similar growth levels in 2018 as the country had seen last year.

($1 = 0.7155 pounds)

(Writing by Sinead Cruise; editing by Jason Neely)