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Billion pound buyback buoys Lloyds as profits jump

Billion pound buyback buoys Lloyds as profits jump

Shares in Lloyds (LLOY) have rallied as the bank announced a £1 billion share buyback alongside the highest pre-tax profit since 2006.

Lloyds bucked a falling FTSE 100, rising 1.5% to 68.9p, as the bank announced a 24% rise in profit to £5.3 billion for 2017, up from £4.2 billion last year.

Investors were also buoyed by a 2.05p final dividend, which will bring 2017's total payout to 3.05p. While this is up from last year's 2.55p payout from ordinary dividends, it is in line with 2016's total 3.05p, once a half a penny special dividend is included.

But Lloyds has decided against a special dividend this year, choosing to spend the cash instead on a bumper share buyback worth 1.4p per share.

'There's a lot to like in Lloyds' numbers, with profits rising, costs under control, and prodigious amounts of cash being thrown off to shareholders,' said Laith Khalaf, senior analyst at Hargreaves Lansdown 

'The Bank of England can take its fair share of credit for Lloyds' profits, as rising interest rates have delivered a boost to the top line at Lloyds. With more rate rises waiting in the wings, this looks like a tailwind that's going to be blowing behind Lloyds for the foreseeable future.'

Bullishness over the bank was however tempered by profits that fell marginally short of expectations due to a further £600 million charge for compensation related to payment protection insurance (PPI) mis-selling in the fourth quarter, taking 2017 PPI costs to £1.7 billion.

'The final deadline for claims is August 2019, so the company is moving towards the point at which it can leave the debacle behind it, but the total bill already stands at more than £18 billion,' said Russ Mould, investment director at AJ Bell.

The bank revealed alongside the results its three-year strategic plan, involving £3 billion of investment mostly in technology and a bid to amass £50 billion in additional retirement assets from 1 million new pensiuon customers by 2020.

'The government's auto-enrolment programme is now largely in the rear view mirror, which means Lloyds will have to pinch these new customers off someone else, so it will have to sharpen up its toolkit,' said Khalaf.

'One would expect Scottish Widows to play a pivotal role in this pensions land grab, which lends some context to the recently announced prospective withdrawal of £109 billion of assets from Standard Life Aberdeen.'

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