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Lloyds cuts 2020 targets as PPI bill sends annual profits tumbling 26%

UK News | Published:

The lending giant has reported pre-tax profits of £4.39bn for 2019, down by 26% on 2018.

A Lloyds bank Black Horse sign

Lloyds Banking Group has warned of a hit to 2020 results amid tough competition in the mortgage market as it revealed that a mammoth payment protection insurance bill sent annual profits tumbling.

The lending giant lowered two key targets of profitability for 2020 as its retail margins come under pressure amid low interest rates and intense price competition that is affecting players across the sector.

Its annual results showed that pre-tax profits slumped by 26% to £4.39 billion for 2019 after it was hit by a £2.5 billion bill for the payment protection insurance (PPI) scandal.

Its annual report, published alongside the results, revealed that chief executive Antonio Horta-Osorio’s pay fell by 28% to £4.73 million for 2019 as a result of the steep drop in profits, while the wider staff bonus pool was cut by 33% to £310.1 million.

The group also outlined plans to reduce Mr Horta-Osorio’s maximum total payout – including controversial pension payments – by 29% for 2020 and beyond as part of an executive remuneration overhaul.

Mr Horta-Osorio – who has faced criticism over his pay in the past year – will see his pension drop to 15% of basic salary, down sharply from 33%, as part of efforts to narrow the gap between executive pay and the wider workforce.

The lower pension payment represents a cut of almost £230,000.

Lloyds boss
Lloyds chief executive Antonio Horta-Osorio said the 2019 results were ‘resilient in the face of significant political and economic uncertainty’ (John Stillwell/PA)

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Mr Horta-Osorio insisted the results for 2019 were “resilient”, with underlying profits down by 7% to £7.5 billion.

He said: “In 2019 the group has continued to make significant strategic progress while delivering solid financial results in a challenging external market.”

He added: “Throughout 2019, UK economic performance has remained resilient in the face of significant political and economic uncertainty, supported by record employment, low interest rates and rising real wages.

“Although uncertainty remains given the ongoing negotiation of international trade agreements, there is now a clearer sense of direction and some signs of an improving outlook.”

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But the group flagged that it expects to report a return on tangible equity of between 12% and 13% in 2020, against previous targets of 14% to 15%.

Its net interest margin – another measure of profitability – is also set to drop this year as challenging retail banking conditions take their toll.

Shares rose 3% despite the lowered targets as Lloyds delivered some cheer for investors with a 5% rise in the dividend payout.

The group said it did not set aside any further PPI charges in the final three months of 2019 after a mammoth £1.8 billion bill in the third quarter amid a rush of claims ahead of the August deadline.

It said it took “some comfort” from this that its current provisions will be enough, allowing it to draw a line under the costly saga.

Mr Horta-Osorio gave assurances that he was “absolutely committed” to seeing through the current three-year strategy for the bank despite speculation swirling that the bank has been stepping up its CEO succession planning.

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