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Lloyds Banking Group Reports Stronger Underlying Profits, But Cuts Bonus Payouts
Tom Burroughes
25 February 2016
, which provides services including private banking, today reported an underlying profit of £8.1 billion ($11.3 billion) for 2015, a rise of 5 per cent on a year before. Bonus scheme shrinks Despite better underlying financial results in 2015, Lloyds said its "total bonus outcome" has reduced year-on-year to £353.7 million (from £369.5 million in 2014). This change includes a 26 per cent collective performance adjustment applied to the group's total bonus outcome, reflecting additional "conduct-related provisions relevant to the year which impacted negatively on profitability and shareholder returns". As previously announced, £30 million was deducted to recognise the effect of the bank falling short in how it handled complaints about PPI issues, the bank said. As a percentage of pre-bonus underlying profit, the total bonus outcome has decreased to 4.2 per cent (from 4.5 per cent in 2014). Cash bonuses remain capped at £2,000 with additional amounts paid in shares and subject to deferral and performance adjustment. Average bonus awards across all colleagues are approximately £4,600, it said.
Net interest income was £11.5 billion, up 5 per cent, driven by further margin improvement to 2.63 per cent, the London-listed banking group said in a statement.
Operating costs fell to £8.3 billion despite additional investment and business simplification costs. At the end of last year, Lloyds had a cost/income ratio of 49.3 per cent, down by 0.5 percentage points.
The bank logged a statutory pre-tax profit of £1.6 billion (2014: £1.8 billion), with increased charges for payment protection insurance sale (banks have, in recent years, had to set aside heavy sums to compensate clients for mis-selling of PPI packages). Lloyds said a PPI provision of £4 billion includes an additional £2.1 billion in the fourth quarter of last year.
The bank said it had a strong balance sheet with a pro forma common equity tier one ratio of 13.0 per cent (2014: 12.8 per cent).
In its retail division, which includes wealth management services among other segments, Lloyds said underlying profit increased 9 per cent year-on-year to £3.514 billion. Net interest income increased 4 per cent. Margins increased by 11 basis points to 2.40 per cent, driven by improved deposit margin and mix, more than offsetting reduced lending rates.
Other income was down 7 per cent driven by current account transaction related income and regulatory changes, in particular, impacting the wealth business, the bank said.
Total costs increased 2 per cent to £4.573 billion, reflecting continued business investment and simplification to improve customer experiences and enable staff numbers to be reduced by 7 per cent in 2015.