Lloyds TSB sells Abbey Life

An undated file photo of Abbey's headquarters in Triton Square, London. British bank Lloyds TSB lifted its dividend for the first time in five years on Tuesday as it reported a 15 percent rise in earnings and sold its Abbey Life insurance unit for almost 1 billion pounds ($2 billion).

LONDON (Reuters) - British bank Lloyds TSB (LLOY.L) lifted its dividend for the first time in five years on Tuesday as it reported a 15 percent rise in earnings and sold its Abbey Life insurance unit for almost 1 billion pounds ($2 billion).

The bank's upbeat tone lifted its shares 4 percent to 556 pence by 1315 GMT, making it one of the top performing UK shares in a firm market and valuing the bank at 31 billion pounds.

Britain's fifth biggest bank raised its interim dividend by 5 percent to 11.2 pence per share, which it said showed it was "increasingly confident in the group's earnings prospects for 2007 and beyond".

Lloyds pays the highest dividend relative to its share price of any British bank. It now offers a yield of 6.5 percent, and it said more increases are set to follow.

"We're looking to not only have a progressive dividend policy but also increase our dividend cover," said Eric Daniels, chief executive.

Lloyds said its profit before tax and volatility in the six months to the end of June was 2.01 billion pounds, up from 1.75 billion a year before and marginally ahead of the average forecast from analysts polled by the company.

"This is the best set of results I've seen out of Lloyds for probably 4 years," Alex Potter, analyst at Collins Stewart said, citing good underlying revenue growth, an improvement in efficiency, and a "relatively small" charge to cover the cost of customer refunds.

Daniels said the results represented the bank's strongest rate of growth in a decade, but he said he remained in the second phase of a 3-phase recovery plan implemented when he became chief executive in June 2003. Phase 3 aims to expand by product or geography.

"For the moment we're very content to continue doing what we're doing," Daniels told reporters on a conference call. "Our greatest opportunity is within the franchise still, so we're very firmly in phase 2, we think we've got a lot more opportunity and a pretty clear roadmap to realize it."

Lloyds said it had agreed to sell Abbey Life to Deutsche Bank (DBKGn.DE) for 977 million pounds in cash, representing a small premium to the value of the book. The closed life insurance business was not a core strategic asset and the sale further improves its capital efficiency, it said.

INCOME GROWTH AHEAD

Lloyds said income growth of 9 percent reflected strong performances from each of its divisions and outpaced cost growth of 6 percent.

Wholesale and international banking profits rose 12 percent, underpinned by a 26 percent rise in its Corporate Markets income, while Insurance and Investments profit rose 7 percent.

Lloyds said its half-year charge for bad debts rose 5 percent to 837 million pounds, including a 1 percent fall in UK retail bad debts to 627 million pounds. The UK retail bad debt charge in 2007 should be below last year's impairment, it said.

The bank took a charge of 36 million pounds to cover the cost of settling customer claims on bank overdraft charges in the last six months. It follows a surge in customer complaints across the industry, but was well below the 120 million pound charge unveiled by HSBC (HSBA.L) on Monday, which had stoked concern all the major banks would take a similar hit.

Lloyds has 16 million current account customers, or just over a one-fifth market share, but its share of overdraft balances is only 12 percent, it said.

Weather related insurance claims rose by 57 million pounds in the first half, including 45 million of claims related to flooding in parts of Britain in June, it said.

It said flood-related claims in the second half were likely to be close to the level in June.

The bank's net interest margin fell to 2.87 percent from 3.03 percent a year earlier, which it said was due to price competition and a recovery in lower margin mortgage business. Its net mortgage share was 8.9 percent, near its traditional share and bouncing back from 6.3 percent in 2006.

(Additional reporting by Clara Ferreira-Marques)