Lloyds TSB pays price of scandal

LLOYDS TSB held its dividend today despite revealing that the 'precipice bonds' scandal and other mis-selling allegations would cost it £300m in the first half.

Defying sceptics who argue Lloyds urgently needs to cut its £1.9bn annual dividend bill, new chief executive Eric Daniels left the interim payment unchanged at 10.7p as he unveiled a 5% increase in first-half profits to £1.68bn.

'The board recognises the importance attached by shareholders to the dividend,' Lloyds said, but left itself with the option to cut in future as it added it would take each dividend decision 'on its merits at the time'.

However, the results were overshadowed by the expected cost of the alleged mis-selling of so-called precipice bonds - high income instruments which do not guarantee the investor's principal.

'The estimated total cost of redress (over precipice bonds and certain other long-term savings products) is forecast to increase by some £300m,' the bank admitted in the statement today, adding there had been an increase in the number of complaints.

About 50,000 people, who bought the Extra Income & Growth Plan bonds through Lloyds branches, are expected to lose large amounts of money when the bonds mature next year. The average investment was £10,000. Lloyds has begun compensating some of them after being criticised by the Financial Ombudsman for its sales tactics in some cases. The bank, which denies the bond design was flawed and rejects suggestions that they were mis-sold, is expected to be fined by the Financial Services Authority.

The bonds, sold under the Scottish Widows brand, contained 10,000 words of small print and a complex mathematical formula. Although they paid out a high yield there was no guarantee of the principal, which depended on stock market performance.

Last month FSA chairman Sir Howard Davies said precipice bonds were 'not inherently wicked' but that many had been sold inappropriately. 'They were highly leveraged investments on the stock market and sold to people where it was difficult to see they were suitable.'

Bad debts were reduced by 2% to £470m.

Australia's ANZ Bank today became the first to confirm it was interested in buying Lloyds' New Zealand operation, National Bank of New Zealand.

Bank swallows Goldfish

LLOYDS TSB is taking full control of the loss-making Goldfish credit card business in a deal that values the business at £112.5m.

The bank already owns 30% of Goldfish and is buying the 70% stake held by Centrica, the British Gas group.

Centrica, which yesterday reported first-half losses of £30m at Goldfish, said the sale will throw up a loss of £45m after tax, costs and goodwill write-offs. Despite the bigger-than-expected losses over the first half, Centrica said it still expects Goldfish to reach its target of break-even by the end of the year. The business has 1.8m card holders and a credit card and personal loan book of £900m.