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Lloyds Cautions On 2012 After £3.5 Bln Annual Loss

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Lloyds Banking Group Plc (LYG, LLOY.L) warned of lower income and margins in 2012 after reporting a huge loss for fiscal year 2011. The results reflected a hefty 3.2 billion pounds charge set aside to cover payment protection insurance claims. Following results, the British banking giant's shares lost some 3 percent in Friday morning trade in London.

Such PPI claims did not spare rival Royal Bank of Scotland Group plc (RBS,RBS.L), which on Thursday reported a sharply wider 2011 loss, exacerbated by large provisions for Greek government bonds.

Lloyds Chief Executive António Horta-Osório said, "In 2011, we established our longer term strategy for the Group, acted quickly and decisively to mitigate the effects of a challenging environment and put in place the right foundations to deliver on our objectives over the next 3 - 5 years, whilst continuing to support the UK economy."

In the year, retail segment's profit declined 9 percent due to higher funding costs and muted demand for credit, while that of wholesale plunged 67 percent on asset sales and derivative valuation adjustments. Meanwhile, commercial, wealth and international and insurance segments showed improved performance.

Total income, net of insurance claims, fell 17 percent on a reported basis and 10 percent on a combined businesses basis, reflecting subdued lending demand, the company said.

Banking net interest margin reduced 14 basis points to 2.07 percent, in line with expectations, the company noted. The decline reflected increased funding costs partially offset by the benefits of asset repricing.

The company noted that its aggregate exposure to Greece, Ireland, Italy, Portugal and Spain as of December 31, 2011 totaled 25 billion pounds, of which 15.84 billion pounds relates to Ireland and 486 million pounds relates to Greece. The exposure has been reduced by 9 billion pounds since end of 2010.

Looking ahead, Lloyds projects lower income for 2012 on a combined businesses basis and banking net interest margin below 2 percent, as it expects the external environment to remain challenging. However, it remains confident that medium-term financial targets are achievable over time.

The company also said it now expects the attainment of income related targets to be delayed beyond 2014 as a result of the weaker than expected economic outlook.

Lloyds also projects that total discretionary bonus awards would be approximately 30 percent lower than last year. Bonus awards for Executive Directors are deferred until at least 2014.

In 2011, pre-tax loss was 3.54 billion pounds, as against a profit of 281 million pounds last year. Apart from the huge PPI claim, the results also included 1.45 billion pounds of integration, simplification and EC mandated retail business disposal costs.

Lloyds shares are currently trading at 35.56 pence, down 1.01 pence or 2.77 percent.

by RTT Staff Writer

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