Lloyds Banking Group Suffers £3.5 billion losses in 2011

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Lloyds Banking Group (LSE:LLOY) reported an annual loss of £3.542 billion in 2011, a very steep downfall from the £281 million profit it made in 2010, citing the £3.2 billion Payment Protection Insurance (PPI) provision as the single biggest factor behind the loss.

Still, Chief Executive António Horta-Osório said the Group delivered “a resilient performance despite weakening UK economy, ongoing financial market volatility, continued high levels of regulatory scrutiny and competitive markets”.

Financial Highlights

In the annual report released Friday, 24th February, the combined profit before tax generated by the Group in 2011 was 21.38% higher than a year ago from £2.212 billion to £2.685 billion.

The Core Tier 1 Capital ratio, the ratio of the bank’s core equity capital to its’ total risk weighted assets, was increased to 10.8 % or 60 basis points.

Deposits increased by 6% to £406 billion, while the loans to deposit ratio improved to 135% from 154% in 2010.

Compensation and Bonuses

In relation to remuneration and bonuses, which is a hotly-debated topic amongst Brits in the past weeks, is down 30% from a year ago to £375 million.

The Group has implemented a policy to defer bonuses for Executive Directors until 2014, with the CEO declining any amount for 2011 and the rest getting less than £3,900 per employee, with no one receiving more than £2,000 in cash. The decision is taken into consideration with the state owning 41% of the company.

“53 per cent of those eligible for bonus will receive less than £2,000… 63 per cent of total Group bonus pool is deferred… Annual incentives for Executive Directors and the Group Executive Committee down approximately 50 per cent against 2010 on a like for like basis.”

Lloyds’ own position regarding the bonuses was much anticipated as a competitor, Royal Bank of Scotland, received much criticism regarding bonus pay despite losses incurred as well as the perceived disproportion of the “variable compensation”.

RBS released its 2011 financial report yesterday, showing £766 million pre-tax losses, yet providing £785 million in bonuses including £390 million exclusively for the Global & Business Markets division alone.

“We strive to ensure that we motivate, incentivise and retain our talent while continuing to be mindful both of the economic outlook and the views of our numerous stakeholders,” Lloyds’ official statement on the subject of remuneration.

2012 Outlook

The financial giant acknowledged a “very challenging environment” in 2011 and does not see it changing in the current year.

The largest retail bank in the UK, comprising of Lloyds TSB, Halifax, and Bank of Scotland, expects a lower income in 2012, as the group will further reduce their non-core assets and a “subdued” demand its core loan books, higher wholesale funding, and low interest rates.

Nonetheless, the Group said they have “put in place the right foundations” to reach its objectives over the next three to five years.

CEO António Horta-Osório:

“While we remain mindful of the challenges of the external environment, Lloyds Banking Group is now in a significantly stronger position than it was twelve months ago, and I would like to thank all our people for their contribution to our progress in 2011.”

Company Spotlight

Lloyds Banking Group was formed in 2009 following the acquisition of Halifax. The Group is publicly listed on the London Stock Exchange under the ticker “LLOY” and on the New York Stock Exchange under the symbol “LYG”.

The Group offers retail banking, wholesale banking services, commercial banking, wealth management, private banking, asset management, and insurance.

In London trading today, Lloyds Group was trading the biggest volume of shares at 153 million in downward trend, slipping 0.9% to 36.24 pence at 12:30 PM, local time.

References
 Company history
 Lloyds Banking Group makes annual loss of £3.5bn
 Lloyds Posts $4.41 Billion Loss in 2011
↑ Lloyds Banking Group 2011 Full Year Report
 Lloyds Banking Group Company Overview
 Lloyds Banking Group Business Profile

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