March 28, 2024

DealBook: Cost-Cutting Helps Lloyds Bank Earn $2.3 Billion

António Horta-Osório, chief executive of the Lloyds Banking Group.Leon Neal/Agence France-Presse — Getty ImagesAntónio Horta-Osório, chief executive of the Lloyds Banking Group.

LONDON – The Lloyds Banking Group said on Tuesday that first-quarter net profit rose to £1.5 billion ($2.3 billion) from the period a year earlier, as it continued to reduce costs and shed assets.

The result, which beat analysts’ estimates, was a sharp turnaround from the £5 million loss Lloyds posted in the first quarter of 2012.

The bank’s performance was driven by higher revenue in its main retail banking business, falling costs as it sold assets and a reduction in money set aside to cover delinquent mortgages, Lloyds said in a statement.

“We made substantial progress again in the first quarter,” the chief executive, António Horta-Osório, said in the statement.

Shares in Lloyds, which is 39 percent owned by the British government after it received a bailout during the financial crisis, rose almost 5 percent in morning trading in London on Tuesday.

In recent years, Lloyds and other local lenders have had to pay billions of pounds for inappropriately selling insurance products to British customers who did not require them. The bank said it had not set aside additional money to cover the costs for that inappropriate activity.

As British regulators push banks to shore up their capital positions, Lloyds has been increasing its reserves through a series of disposals.

On Monday, Lloyds sold its Spanish operations to Banco Sabadell of Spain. Lloyds is also planning an initial public offering of part of its branch network to meet conditions of its government bailout in 2008. The bank made £394 million last month from selling a 20 percent stake in the wealth management firm St. James’s Place.

In March, regulators said British financial institutions would have to raise an additional £25 billion of capital. Many analysts expect that Lloyds will have to raise additional funds, though it said on Tuesday that it was still waiting to receive guidance from the local authorities.

The bank’s core Tier 1 ratio, a measure of a firm’s ability to weather financial shocks, remained at 8.1 percent under the accountancy rules known as Basel III.

During the first quarter, Lloyds said it had continued to reduce costs and cut the amount of money set aside to cover delinquent loans. Impairment charges fell 40 percent, to £1 billion, from the period a year earlier, while noncore assets fell 6 percent, to £92.1 billion.

Lloyds also said on Tuesday that Matthew Elderfield, deputy governor at the Central Bank of Ireland in charge of financial regulation, would become its new group director of conduct and compliance beginning in October.

Article source: http://dealbook.nytimes.com/2013/04/30/lloyds-profit-surges-to-2-3-billion/?partner=rss&emc=rss

DealBook: Regulators Find British Banks Must Raise $38 Billion

LONDON – British banks must raise a combined £25 billion, or $38 billion, in new capital by the end of the year to protect against future financial shocks, according to a report from local authorities on Wednesday.

The Bank of England, which takes over the direct supervision of British firms like HSBC and Barclays next week, said the new reserves were needed to protect against losses connected to risky loan portfolios, future regulatory fines and the readjustment of banks’ bloated balance sheets.

The announcement follows a five-month inquiry by British officials into the financial strength of the country’s banking industry. With the world’s largest financial institutions facing new stringent capital requirements, the Bank of England had been concerned that local firms did not have large enough capital reserves to offset instability in the world’s financial industry.

Earlier this month, the Federal Reserve also released the results of so-called stress tests of America’s largest banks, which indicated that most big banks had sufficient capital to survive a severe recession and major downturn in financial markets. Citigroup and Bank of America, after disappointing performance the previous year, now appeared to be among the strongest.

British banks are not so lucky.

The reported released on Wednesday said that local banks had overstated their capital reserves by a combined £50 billion, which authorities said would now be adjusted on the firm’s balance sheets. Many of the country’s banks already have enough money to handle the accounting adjustment, the report said on Wednesday.

The country’s regulators also said that British banks must raise a total of £25 billion in new capital by the end of the year. The Bank of England did not name which firms needed to meet the shortfall.

Local regulators have set a deadline for the end of 2013 for banks to increase their reserves to a core Tier 1 capital ratio, a measure of a bank’s ability to weather financial crises, of at least 7 percent under the accounting rules known as Basel III.

Regulators on Wednesday called on banks to increase their reserves by raising new equity, selling noncore assets or restructuring their balance sheets. British policy makers are concerned that firms will cut lending to the local economy as part of their efforts to increase their capital.

Speaking in November, Mervyn A. King, the outgoing governor of the Bank of England, said firms’ push to raise new capital was “perfectly manageable, but it requires some action now.”

As part of increased oversight of British banks, the Prudential Regulatory Authority, a newly created division of the Bank of England that will have daily regulatory control of the country’s largest firms, will have a direct say in how banks raise the new capital.

The authority’s board is expected to meet over the next couple of weeks to decide which banks will be forced to raise new money. British firms must receive regulatory approval for their capital raising plans.

Attention is likely to focus on both the Royal Bank of Scotland and Lloyds Banking Group, which both received multibillion-dollar bailouts during the financial crisis. The banks, which are part nationalized, have recently announced the sale of some of their divisions, including the Royal Bank of Scotland’s American subsidiary, Citizens Financial Group, in a bid to raise new money.

“We see R.B.S. as most exposed,” Citigroup analysts said in a research note to investors on Wednesday.

As the capital increased was in line with many analysts’ expectations, British banking stocks were relatively flat in late morning trading in London on Wednesday.

Others firms are taking a different route. In November, Barclays issued $3 billion of so-called contingent capital, or CoCo bonds, which converts to equity if a bank’s capital falls below a certain threshold.

The push to increase cash reserves for Britain’s largest banks is part of an effort to prevent future financial crises. Starting in 2014, the Bank of England plans to conduct regular stress tests of the country’s financial institutions to check they have sufficient capital reserves.

Article source: http://dealbook.nytimes.com/2013/03/27/regulators-find-british-banks-must-raise-38-billion/?partner=rss&emc=rss