Lloyds 'in FSA clash over dividend'

Updated: 

Lloyds branchAP Photo/Matt Dunham

Taxpayer-backed Lloyds Banking Group is reportedly at loggerheads with the City watchdog over plans to restart payouts to shareholders.

Chief executive Antonio Horta-Osorio wants to pay a small dividend from the profit the 40% state-owned lender expects to make next year, the Sunday Times said, the first since the Government acquired its stake in the 2008 rescue deal.


But the Financial Services Authority (FSA) is understood to have threatened to block the move because it wants Lloyds to preserve cash to protect itself from a potential eurozone break-up or other future financial shocks.

Mr Horta-Osorio is likely to be angered by the regulator's view as restoring the dividend would lure investors back to the bank and help it on its way to the eventual sale of the taxpayer holding.
The stand-off comes amid increasing tensions between Britain's banks and regulators with the FSA and Bank of England demanding that lenders raise more capital and take giant write-downs on loans.

Lloyds reportedly began talks with the FSA last month about its dividend payment. The bank is understood to be planning to pay the dividend in early 2014 from 2013 earnings. The lender was pushed to a £439 million loss in the first half of the year as it took an additional £700 million charge for dealing with claims for mis-sold payment protection insurance.

Lloyds is forecast by analysts at Credit Suisse to report pre-tax profits of £800 million for the year. At 37.8p, the bank's shares are a little more than half the 65p price paid by the Government for its stake in the wake of the financial crisis.

Despite the disappointing headline losses, Lloyds has shown some progress towards its recovery. It has been cutting bad debt charges, reducing eurozone exposure, increasing small-business lending and recording higher profits at its core businesses. Lloyds reached a major milestone in June when it finally agreed the sale of 632 branches to the Co-operative Group for up to £750 million.

The Financial Policy Committee said in June that banks could temporarily run-down some of the short-term cash set aside for future market shocks in a bid to stimulate lending and growth in the economy.

But the committee, chaired by Sir Mervyn King, said banks should still show restraint when determining payouts to shareholders and bonuses for staff so they can build up cash reserves.

© 2012 Press Association

SPONSORED FINANCIAL CONTENT