Bank of Scotland owner Lloyds Banking Group has become the latest lender to post a bumper annual profit and reveal a return to bonuses - despite a hit from fraud costs.
The group reported pre-tax profits surging to £6.9bn in 2021, up from £1.2bn the previous year, boosted by a £1.2bn credit from provisions for bad debts, having set aside £4.2bn the previous year.
Lloyds also benefited from a boom in lending demand, as its mortgage book jumped £16bn higher to £293.3bn last year.
However, the financial statement also revealed charges for past misdeeds of £1.3bn over the year, with a £775m hit in the fourth quarter, including £600m for the Halifax Bank of Scotland (HBOS) Reading scandal, which took place before the financial crisis.
The group said as a result of the HBOS scandal and way previous compensation was handled, it has frozen deferred bonuses that were due to pay out this year for former chief executive Antonio Horta-Osorio, who left last year, and two other executives, including former finance chief George Culmer.
These have been suspended while the remuneration committee considers whether to reduce the payouts.
Lloyds' annual report showed that overall, the group shared out a staff bonus pot of £399m for 2021, having not paid out any bonuses in 2020 due to the pandemic.
But it said the pool was reduced by £83m, reflecting a recent regulatory fine for insurance renewal documentation and the HBOS Reading provision for compensation payouts.
The report showed chief executive Charlie Nunn was paid £5.5m last year, despite only taking on the top post in August, as his pay package was boosted by a £4.2m “golden hello” to buy out shares he held in previous employer HSBC.
Horta-Osorio, who left for a short-lived stint as chairman at Credit Suisse, was paid £2.5m, including a £1.5m bonus, although some of the deferred payments for 2022 have been suspended.
The group also delivered returns to investors, as it said it would buy back £2bn of its own shares and pay a final dividend of 1.33 pence a share.
But Lloyds shares fell 8% amid hefty falls on the wider London market, as Russia’s military attack on Ukraine sent stocks reeling.
Nunn also unveiled what he called an “ambitious” strategy alongside the results, promising a “significant shift” towards growth, focused more on fee-paying business to become less reliant on interest rates.
He stressed this would not affect its basic banking services.
The new boss also pledged to spend £4bn over five years on growing sectors, such as wealth management and online business banking.
“2021 has been a year of solid financial performance with successful strategic execution, ongoing investment and continued franchise growth,” he said.
The figures cap a slew of impressive results from the major players in the sector, following profits of £8.4bn at Barclays, HSBC’s £13.9bn earnings and £4bn in operating profits at NatWest.
Lloyds said it was expecting mortgage business to ease back in 2021 amid rising interest rates and the cost of living crisis, though it said the long-term drivers of the housing market would ensure ongoing growth.
John Moore, senior investment manager at Brewin Dolphin, commented: “Lloyds is doing well, but historically its fate has largely been tied to the performance of the UK’s housing market, the prospects of which currently split opinion.”
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