Lloyds shares jump despite 26% drop in pre-tax profit

Today shares in the bank Lloyds Banking Group (LSE: LLOY) jumped up about 3% despite profits plunging. There was yet another tranche of money, £2.5bn, set aside by the bank to cover PPI payments – although these are now drawing to an end. The bank said it had reached a settlement with the Official Receiver over the mis-selling of payment protection insurance.

It brings the total paid out by Lloyds over the mis-selling saga to £21.9bn.

Lloyds said there had been a “significant increase” in queries about PPI claims ahead of a deadline to claim in August last year.

The CEO, Antonio Horta-Osorio, insisted the bank’s results for 2019 were “resilient”, with underlying profits down by 7% to £7.5bn.

Lloyds also reported that its impairments on bad loans hit £1.3bn, up from £937m the previous year, due to weakening second-hand car prices affecting its motor finance business and two large company failures hitting its commercial division, possibly suggesting trouble ahead for the UK economy.

Horta-Osorio added: “In 2019 the Group has continued to deliver for customers while making significant strategic progress and delivering a solid financial performance in a challenging external market. While it is disappointing that this was impacted by the additional PPI charge in the year, as a result of this performance, the Board has been able to recommend an increased total ordinary dividend of 3.37 pence per share.”

Earnings per share dropped in line with profit, falling 36 per cent to 3.5p. But the bank upped its dividend five per cent to 3.37p per share, compared to 2018’s 3.21p.

Jeffries’ Joseph Dickerson Lloyds’ guidance for 2020 was “in-line to better on the profit and loss elements with capital levels and CET1 targets better than expected”.

Goodbody analyst John Cronin described the results as a “slightly negative” update but “not as bad as we had expected”. “All in all, we see this as a slight miss for [the fourth quarter], an attempt at reassuring the market in relation to the outlook (neutral), and the fact that the capital ratio target range has not been upped suggests management is doing its best to keep investors warm,” Cronin added.

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