Lloyds scraps share buyback plan

LLOYDS TSB today abandoned plans for a share buyback worth up to £900m five months after raising the possibility with shareholders.

News of the change of heart came as the bank reported a 66% rise in headline profits to £4.35bn. After stripping out all one-off items, profits fell 4% to £3.38bn. Chief executive Eric Daniels said his estimate of underlying profits growth was 5%.

The bank rejected a buyback because it wanted the flexibility to make acquisitions, he said.

The U-turn sent Lloyds TSB shares sliding 12 1/2p to 442p, making it the biggest faller in the FTSE 100. It announced in October that it might use the proceeds of the sale of National Bank of New Zealand to mount a buyback.

Lloyds has held the ordinary final dividend at 23.5p, making an unchanged 34.2p total. While the bank is flush with capital from disposals, its underlying profits barely cover the £1.9bn annual dividend bill.

But Daniels said the bank could afford it. 'We are not skating close to the edge. We're comfortable with our capital position,' he said.

He also denied there had been a dispute with former finance director Philip Hampton over whether to cut the dividend. Hampton quit abruptly in January and last week his successor was named as former Kingfisher finance chief Helen Weir.

'Philip Hampton did not leave because of dividend disagreement,' Daniels said. He went because his work on restructuring the group was 'pretty much completed'.

Mis-selling cost the bank £300m. The Competition Commission crackdown on small-firms banking wiped £174m from profits while pension fund liabilities hit it for £131m. Profits from insurance and investments, which includes Scottish Widows, fell by 17% to £1.19bn.

Lloyds captured market share in credit cards, personal loans, savings accounts and UK life and pensions business, and slowed the pace of margin erosion. 'We remain confident of delivering further improved performance by the second half of 2004,' Daniels said. He pointed to the Goldfish credit card business, personal loan businesses and asset finance operations as the kind of 'value-enhancing' acquisitions the bank would consider.

He declined to say whether Lloyds is still interested in Egg, which is for sale. 'We will of course continue to keep all options for the utilisation of capital under review,' he said.

Analysts said the numbers were marginally ahead of expectations, but some still predict a dividend cut in 2005. The shares yield 7 1/2%, by far the highest of any bank.