Lloyds Banking Group is poised to buy back about £1billion of its shares from next month as it begins a sweeping new strategy under replacement boss Charlie Nunn.
The announcement will come alongside the bank’s full-year results, the first to be revealed under Nunn who took over from Antonio Horta-Osorio last summer.
Repurchase programmes buy back shares from the stock market to boost the value of the remaining shares, providing a lift to Lloyds investors.
Moving in the right direction: Repurchase programmes buy back shares from the stock market to boost the value of the remaining shares, providing a lift to Lloyds investors
The bank revealed in October that it had more than £4billion in surplus capital.
In a presentation seen by The Mail on Sunday, director of investor relations Edward Sands said: ‘We have a very strong capital position that is likely to lead the board into a conversation around surplus capital distributions over and above the ordinary dividend.
The market is expecting a buyback of circa £1billion – so a reasonably meaningful buyback programme.’
Investors said Lloyds set aside a large amount of cash for potential bad debts which have not materialised and so can be used elsewhere – noting that this should enable significant dividend payments an share buybacks.
Analysts are forecasting that the dividend will amount to 1.99p a share – totalling £1.41billion – for 2021. This is expected to rise to £1.59 billion for 2022 and £1.79billion for 2023.
Rivals Barclays, HSBC and Standard Chartered all used their extra capital to buy back shares last year while NatWest bought back stock from the Government, reducing the State’s shareholding to just over 50 per cent.
Banks are sitting on big capital cushions after being forced by the Bank of England to halt dividend payments in 2020 during the pandemic in order to shore up their balance sheets.
Russ Mould, analyst at AJ Bell, said: ‘The key here is how much excess capital does the firm have relative to regulatory requirements.
‘That excess could in theory be used for buybacks – as the cash will be earning so little it will start to depress returns otherwise.’
Nunn is also expected to unveil his highly anticipated plans for the bank which are thought to include the expansion of wealth management, insurance, corporate banking and its role as a landlord.
He is also set to warn of rising operating costs as inflation rises.
