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Lloyds to launch £1B share buyback as FY'17 profit rises YOY

Lloyds Banking Group Plc unveiled plans to launch a share buyback and pay higher dividends for 2017 as it reported a year-over-year increase in annual profit.

The U.K. lender, which returned to full private ownership in May 2017, said it plans to launch a share buyback of up to £1 billion, equivalent to up to 1.4 pence per share. The buyback will commence in March and will be completed during the next 12 months.

The bank's board proposed a final ordinary dividend for 2017 of 2.05 pence per share, up from 1.7 pence per share in 2016. The total ordinary dividend for 2017 will then be 3.05 pence per share, up the total ordinary dividend of 2.55 pence per share for 2016.

Given the proposed dividend and the planned share buyback, Lloyds said its total capital return for 2017 will be up to 4.45 pence per share, representing a 46% increase from 2016 and is equivalent to up to £3.2 billion.

The bank reported full-year 2017 consolidated profit attributable to equity holders of £3.46 billion, up from £2.41 billion earned in 2016. EPS for the year was 4.3 pence, compared to 2.9 pence in 2016.

The return on tangible equity was 8.9% in 2017, compared to 6.6% a year earlier.

Net interest income rose on a yearly basis to £10.91 billion from £9.27 billion, while net fee and commission income came in at £1.58 billion, compared to the year-ago £1.69 billion. Net trading income fell year over year to £11.82 billion from £18.55 billion.

Regulatory provisions reached £2.52 billion in 2017, compared to £2.02 billion in 2016. The lender said it increased provisions for costs relating to payment protection insurance by a further £1.65 billion in 2017, of which £600 million was booked in the fourth quarter, taking the overall bill for the scandal to £18.68 billion.

Impairment charges dipped to £688 million in 2017 from the year-ago £752 million.

The group's insurance premium income also decreased, to £7.93 billion in 2017 from £8.07 billion in 2016, while insurance claims declined over the period to £15.58 billion from £22.34 billion.

Lloyds' fourth-quarter 2017 statutory pretax profit on an underlying basis amounted to £780 million, down from the year-ago £973 million.

The bank's fully loaded and transitional common equity Tier 1 ratios stood at 14.1% as of 2017-end, compared to 13.6% at the end of 2016. On a pro forma basis, upon recognition of the dividend paid by the insurance business in February in relation to its 2017 earnings, the CET1 ratio stood at 14.4% at 2017-end, while pro forma CET1 ratio after dividend and share buyback was 13.9%.

As part of its new three-year strategy, Lloyds said it will invest more than £3 billion in strategic initiatives aimed at further digitizing the bank and enhancing efficiency. Looking ahead, the lender said it expects operating costs to be less than £8 billion in 2020. It also expects to achieve a cost-to-income ratio in the low 40s at the end of 2020, including future remediation costs.

In addition, Lloyds said it remains committed to pay compensations to victims of an extensive fraud at subsidiary HBOS Plc's Reading branch, and has now made offers to 57 customers, representing more than 80% of the customers in the review.