Lloyds TSB well ahead

By This Is Money
Updated: 19:00 EDT, 29 July 1999

Lloyds TSB has underlined its position as the number one bank in Britain with an impressive set of half-year figures and a pledge to maintain the current momentum.

'The quality of our earnings remains high, our efficiency ratio continues to improve and we are well positioned to continue delivering value for our customers, our staff and our shareholders,' said chief executive Peter Ellwood.

The bank, which has just splashed out £7 billion on Scottish Widows, also revealed it is still hungry for deals here and overseas.

'You cannot stand still in this business. We are very much looking around and we are interested in all areas - life and pension, general insurance, retail banking, mortgages and private banking,' said finance director Kent Atkinson.

Underlying pre-tax profits for the half-year rose 16% to £1.85 billion and the cost-income ratio (called the efficiency ratio by Lloyds) improved to 42.7%. Post-tax return on equity is

33.5% and the dividend has been increased by 21% to 8.1p.

The shares rose 37 1/2p to 829p in response to the figures, still below the 839p level at which they stood a year ago.

'This is a spectacular set of numbers - quite simply world class. However, the market remains spooked by the banking sector,' said Richard Coleman of Merrill Lynch.

The biggest blot on the figures occurred in the mortgage sector where competition from new players saw the group's share of new business halve from

14.7% to 7%, against its natural share of 9%.

'Our efficiency ratio in mortgages is 20.1%, about half that of the mortgage banks. Our 7% is a good 7%, meaning the quality of the lending is good and it is not unprofitable,' said Atkinson. Domestic provisions cast a cloud too, surging 42% to £260 million. A third of this arose as Lloyds centralised small over-drafts and chose to write off certain outstanding debts.

'The centralisation process does not mean we will become more heavy-handed with customers,' promised Atkinson.

The increase also reflected business growth and was in addition to a spill-over from the lack of confidence in the economy at the end of last year and the beginning of this. 'We do not expect to increase provisions in the second half,' said Atkinson.

On the deposit side, Lloyds withstood competitive pressure, increasing current account balances by 6%. The bank is fast expanding its telephone and Internet businesses.

Lloyds is on target to meet, and probably exceed, the £400 million of cost savings it said it would achieve through the merger with TSB.

The bank's insurance divisions did well.