* New 1.8 billion pounds charge for PPI mis-selling
* To ask regulator in H2 to restart 'modest' dividends
* Preparations for second share sale have begun
* Sale to institutions likely before retail offering
* Shares close down 4 percent
By Matt Scuffham
LONDON, Feb 3 Lloyds Banking Group
dashed investors' hopes of receiving a dividend for 2013 after
it took a further 1.8 billion pound ($3 billion) mis-selling
charge that will blunt its ability to make shareholder payouts
until next year.
The British bank, which last paid a dividend in 2008 before
it was rescued by taxpayers during the financial crisis, said on
Monday it expected to apply to the regulator in the second half
of the year to restart dividend payments.
Most analysts and investors had expected the bank to
announce a small dividend for 2013 alongside its full-year
results later this month. A resumption of dividend payments
would make the bank's shares more attractive to investors and
help to smooth government efforts to sell its remaining 33
Finance Minister George Osborne wants to sell the stake
before the next election in 2015 and is keen for some of the
shares to be offered to the public.
The Treasury and UK Financial Investments, which manages
Britain's stakes in Lloyds and Royal Bank of Scotland,
are continuing to assess options for future share sales and have
not made a final decision.
Banking and political sources said the most likely scenario
continues to be a second sale of Lloyds' shares to institutions
such as pension funds and insurers in March or April. One source
said that up to 10 percent of the shares could be sold.
A bigger sale targeting private retail investors is expected
later in the year and would mark a milestone in Britain's
recovery from the crisis, when taxpayers pumped a combined 66
billion pounds into the two banks.
Andrew Tyrie, chairman of the parliamentary committee that
scrutinises the country's finance ministry, said the government
must try to get the best deal for the taxpayers but stressed the
need for urgency.
"Indefinite public ownership is certainly not the way
forward, with all the pressures and temptations to meddle that
come with it," he said on Monday.
Lloyds said last October it would set out its dividend
policy alongside its 2013 results, but had not stated when it
expected to restart payments.
The bank's shares closed down 4 percent, underperforming a
2.6 percent fall in the European banking index.
Lloyds rushed out an unscheduled trading update on Monday
ahead of full-year results on Feb. 13, flagging the new charge
for mis-selling loan insurance. That takes the total it has set
aside to compensate customers mis-sold payment protection
insurance (PPI) to 9.8 billion pounds - the most of any bank.
PPI was sold by banks and other lenders to millions of
customers. But the policies were discredited when it emerged
many borrowers were ineligible to claim on them - leaving the
industry with a 20 billion pound compensation bill.
Finance Director George Culmer declined to comment on
whether the bank would have been able to pay a dividend for 2013
if it had not taken another mis-selling charge.
State-backed rival Royal Bank of Scotland also
published an unscheduled update last week, saying it would take
3 billion pounds of new charges to cover the cost of past
Despite its latest mis-selling setback, Lloyds remains much
closer to returning to private hands than RBS, which is could be
three to five years away from privatisation.
Lloyds is preparing a prospectus for the sale of
government-owned shares to the public after the state raised 3.2
billion pounds via a 6 percent stake sale in September.
Culmer told reporters that process was "pretty well
Deutsche Bank analyst Jason Napier said Lloyds' dividend
announcement raised questions over the timing of a sale. "We and
many investors we talk to had thought that a return to a modest
dividend at 2013 was a 50/50 outcome. For some therefore,
capital return may be 6-12 months later than expected."
Starting from a small base next year, Lloyds is aiming to
build up its dividend payouts to a ratio of at least 50 percent
of sustainable earnings in the medium-term.
"The 50 percent ratio is good but some people had hoped for
as much as 70 percent in 2015 and that looks ambitious now,"
one of Lloyds biggest 50 institutional investors said.
Lloyds said underlying profit was 6.2 billion pounds in 2013
and it expects to announce a "small statutory profit before tax"
when it publishes its full-year earnings.