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Lloyds quarterly profits dive 50% following bond buyback

Quarterly profits at Lloyds Banking Group have slumped by almost 50% according to the UK bank’s quarterly management statement.

Released to the stock exchange this morning, the statement outlines that profits at the banking group, which had to be bailed out during the financial crisis, have fallen to £654m in the first quarter up to March, a 50% drop from the £1.2bn reported at the same time last year.

The bank blames the slump on £800m-worth of enhanced capital notes, also known as bonds, which were cashed in during the first three months of the year by investors.

The bonds were issued to investors in 2009 to help firm up its balance sheet and to lessen the bank’s reliance on government handouts following the financial crash, proving popular thanks to their massive 12% interest return.

However, after signalling that it would stop paying out on the bonds last year, the bank was taken to the Supreme Court by investors to prevent it from buying back the bonds at face value.

The court ruled in favour of Lloyds, meaning investors have now begun cashing in the bonds.

Despite the sizeable slump, António Horta-Osório, Chief Executive of Lloyds Banking Group, believes the bank is still in good health, and that its ‘low risk business model’ is helping it adapt to a challenging global environment.

He said: “In the first three months of this year we have continued to make good progress, delivering a robust financial performance and maintaining our strong balance sheet. These results demonstrate the strength of our differentiated, simple, low risk business model and reflect our ability to actively respond to the challenging operating environment.”

“We continue to support and benefit from a resilient UK economy and remain focused on delivering on our targets to people, businesses and communities as set out in our updated Helping Britain Prosper Plan.”

“We have also recently launched our SME charter to help small businesses grow and to provide access to funding. In addition, we continue to make good progress in our strategic initiatives: creating the best customer experience; becoming simpler and more efficient; and delivering sustainable growth.”

He added: “This performance, coupled with our differentiated, capital generative, business model, underpins our confidence in generating superior and sustainable returns as we aim to become the best bank for customers and shareholders.”

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