UK Markets closed

Lloyds profits jump to £6.9bn as lender announces £2bn share buyback plan

Lloyds bank profits
Lloyds has reported a five-fold rise in profits. Photo:Peter Nicholls/Reuters

Lloyds (LLOY.L) posted profits of £6.9bn ($9.2bn) in 2021 as the lender announced a £2bn share buyback plan and a dividend of 2p per share.

The UK's largest high street bank reported pre-tax profits of £6.9bn, an increase from the £1.2bn achieved in 2020 but fraud compensation hurt profits.

The lender had to pay £1.3bn in remediation, with a £775m hit in the fourth quarter, including £600m for the payouts and costs related to historic fraud at its HBOS Reading Branch.

Lloyds said “significant uncertainties remain” and that it continued to support a dual set of reviews, including into how customers were treated and compensated by the bank.

Read more: What are share repurchases?

The banking group also said it was reintroducing bonuses for staff with a pool worth £399m, having axed payouts due to the impact of the pandemic a year earlier.

Recently appointed group chief executive Charlie Nunn was paid £5.5m for a six-month period, thanks for a £4.2m buyout of shares he held in HSBC, his previous employer. Finance chief William Chalmers was paid £2.3m.

Nunn said: "2021 has been a year of solid financial performance with successful strategic execution, ongoing investment and continued franchise growth.

"This has enabled the group to deliver on its customer focused ambitions, as set out in strategic review 2021, as well as on Helping Britain Recover during the pandemic. It has also enabled the group to offer high levels of capital return to our shareholders."

The bank also boosted shareholder payouts, announcing a dividend of 1.33 pence per share, bringing the total ordinary dividend for the year to 2p per share

Results were boosted as the lender booked a £1.2bn credit from provisions for bad debts, having set aside £4.2bn the previous year, while it also benefited from a boom in mortgage demand. Its mortgage book surged £16bn to £293.3bn last year.

Customer deposits were up by £25.6bn to £476.3bn, including a 14% increase in retail current accounts to £111.5bn.

Read more: Barclays to buy back £1bn of shares and raise dividend as profit soars

The FTSE 100 listed bank's net income rose to £4.12bn from £3.59bn for the year-earlier period.

Lloyds share price slipped over 7% as it missed profits estimate. Chart: Yahoo Finance UK
Lloyds share price slipped over 7% as it missed profits estimate. Chart: Yahoo Finance UK

Lloyds's return on tangible equity stood at 13.8% but given the better outlook, the lender now expects to make a RoTE of more than 10% by 2024 and 12% by 2026. Return on tangible equity is a ratio that helps measure a company's profitability.

It expects additional revenues of around £700m by 2024 and more than double that of £1.5bn by 2026.

Lloyds' higher profit comes after similarly improved results from Barclays, HSBC and NatWest, as the UK's economic rebound and higher central bank interest rates lift lenders' finances.

Chris Beauchamp, chief market analyst at IG Group, said: "Lloyds’ numbers match the trend from the rest of the sector, with a return to profit and a more optimistic outlook for the year, bolstered by higher rates and increased economic activity.

"The increased compensation costs for previous problems are by now a long-established feature, and investors have learnt to take them with weary resignation."

Freetrade senior analyst Dan Lane added: "The dividend picture is looking rosier at Lloyds. 2p is still far short of the 3.2p the Group paid out in 2018 but it should be enough to signal its intentions to really get back on track sooner rather than later.

"And it has come at the right time for Britain’s biggest lender. Shareholders have given UK banks a free pass after a pretty grim few years but that can’t last forever and the market needs to see proactive signs from the sector that it’s getting back to normal."

Watch: What are SPACS?