Lloyds Bank (LLOY.L) announced a new strategy on Wednesday, as it reported a slump in annual profits and reinstated its dividend.
Lloyds reported a pre-tax profit of £1.2bn ($1.7bn) on income of £14.4bn for 2020. Analysts had predicted a profit of £905m on income of £14.2bn.
“We’ve seen business momentum improve in the latter half of 2020," chief finance officer William Chalmers said on a media call.
Despite beating City forecasts, profits were down more than 70% year-over-year. The bank was hit by provisions for credit losses, linked to the COVID-19 pandemic. Lloyds set aside £4.2bn in 2020 to cover an expected spike in bad loans, including a £128m charge in the fourth quarter. Analysts expected £4.7bn in impairments for the year.
Chief executive Antonio Horta-Osorio said the impact of COVID-19 on the bank had been "profound."
"The group's unique business model, customer focused strategy and transformation in recent years positioned us well to respond effectively to the needs of our customers in 2020," he said. "At the same time, the Group’s financial performance in the year has been impacted by the pandemic."
While provisions dented profits, the bank was boosted by strong mortgage and deposit growth. A temporary stamp duty holiday spurred a boom in the UK property market and Lloyds grew its house lending business by over £7bn.
Lloyds announced a final dividend of 0.57p, the maximum allowed under current Bank of England rules. City analysts had forecast a payout of 0.53p per share, following the Bank of England's decision to lift a COVID-era dividend ban in December.
Analysts at Barclays called it an "encouraging update" from Lloyds. Jefferies said Lloyds had "delivered a strong finish to 2020" and said 2021 guidance suggested the bank could outperform expectations.
Shares in the bank rose as much as 2.5% in early trade in London, topping the FTSE 100 (^FTSE).
Horta-Osorio, who will step down in April after ten years in charge, unveiled a new strategy alongside the annual results.
The bank said it had successfully completed its "Help Britain Prosper" three year plan and would now move on to a strategy dubbed "Help Britain Recover." Lloyds plans to continue investing in the transition to the green economy and said it would invest £900m this year on technology, data, and payments. As part of its plans, Lloyds aims to cut its office space by 20% by 2023.
Lloyds is also plotting a big expansion into wealth management as banks look for fee generating work to offset low interest rates.
“There are an awful lot of our customer needs that are being met by providers other than Lloyds Bank," Chalmers said.
Horta-Osorio said "uncertainties remain" but he was "confident" about the prospects for the bank. Chalmers said the government's recently announce plan to reopen the economy was more ambitious than Lloyds had assumed in its forecasts and vaccinations were also running ahead of assumptions, both of which bode well for the bank.
Horta-Osorio was paid £3.4m last year, Lloyds said, a 30% drop on last year. The Portuguese chief executive saw his total compensation cut by 28% in 2019 to £4.7m following outcry over his remuneration package.
Lloyds bankers received no bonuses last year as the bank's performance did not meet targets last year. Lloyds said total take home was flat for half its start thanks to above-inflation pay rises last year and a one-off £250 recognition award last summer.