Lloyds ups write down on risky assets

British bank Lloyds TSB raised its exposure to risky assets by nearly a third to £280 million but still reported a six per cent increase in underlying last year's profit, yesterday, and boosted its dividend.

Britain's biggest provider of current accounts said its annual profit before tax and volatility rose to £3.92 billion, up from £3.71 billion in 2006.

Revenue growth of five per cent outpaced cost growth of one per cent, and Lloyds' core UK retail bank profit jumped 17 per cent to £1.81 billion, as it opened over one million new current accounts.

"They are producing growth without taking big bets on anything, and that's quite a good thing to have in the current market," said Mike Trippitt, analyst at Oriel Securities.

Analysts said the results were slightly ahead of expectations, write downs compared favourably to other major financial firms and the outlook statement was positive.

Lloyds raised its final dividend by five per cent to take its full-year payout to 35.9 pence, also up five per cent on the year, and said it expects to increase the dividend over time.

"We think we can both increase the cover and increase the dividend," said Eric Daniels, Lloyds chief executive officer, but he declined to provide further guidance. Lloyds' interim dividend increase was its first rise for five years, but turmoil in financial markets since then reignited concern whether it could be sustained. Daniels said the bank had no hesitation in raising the payout.

Lloyds' wholesale and international banking profit fell 12 per cent to £1.44 billion. Without the write down the unit's growth was five per cent, slowing from growth of 12 per cent in the first half in the face of market turmoil, which appears set to continue.

"We think the markets are going to be somewhat fragile and aren't going to be easy. That uncertainty is going to last for a good long while. We would expect it will be at least a few quarters rather than weeks or months," Mr Daniels said.

He predicted the economy will slow this year, but would not go into recession.

Lloyds had previously flagged a £201 million write down from the impact of a drop in the value of assets following the US subprime housing crisis, but raised that by almost £80 million. Lloyds wrote down the value of its asset-backed securities collateralised debt obligations (CDOs) by £114 million, compared to £89 million previously flagged, and cut the value of structured investment vehicle (SIV) capital notes by 22 million, unchanged from its last guidance.

Its impairment loss rose by 15 per cent on the year to £1.8 billion, but retail banking bad debts fell by one per cent to £1.22 billion. Lloyds said it expected the retail impairment charge in the first half of this year to be similar to the first half of last year.