Lloyds TSB aims to pay dividends again in 2009

LLOYDS TSB, the British bank, yesterday said it aimed to resume dividend payments during 2009 as it launched its formal offer for rival HBOS.

In order to do so, it will have to repay the preference shares being issued to the British government.

Both banks also issued third-quarter trading statements. Lloyds warned of a "substantial" fall in reported pre-tax profits, while HBOS said it would take sharply higher impairment charges on its corporate loan book.

Eric Daniels, the Lloyds chief executive who will keep that role in the enlarged bank - to be renamed Lloyds Banking Group - committed it to repaying the preference shares being issued to the government during 2009.

That would lift the block on paying cash dividends. Meanwhile, a scrip issue would be made in respect of 2008.

Cash to repay the preference shares could be raised either by managing the balance sheet or by raising money from investors. This was unlikely to be in ordinary shares, Mr Daniels said.

Separately, the British government yesterday said it had set up a new body, known as UK Financial Investments Limited (UKFI), to manage its shareholdings in banks that subscribe to its recapitalisation scheme. UKFI - to be headed by John Kingman, a senior treasury official - will manage the government's investments in Northern Rock and Bradford Bingley.

The government is also underwriting capital investments for RBS and, once they are merged, HBOS and Lloyds TSB, totalling £37 billion (€46.3 billion).

Lloyds said it had increased its prediction of the annual savings it expected from the HBOS merger, from a £1 billion-plus first estimate to "greater than £1.5 billion" by the end of 2011.

Over the weekend a potential counter-bid for HBOS from an unnamed international bank and spearheaded by Jim Spowart, a former HBOS executive, and a possible third bidder, emerged.

Mr Daniels said: "I don't know anything more than what I've read in the newspapers." But he added that he expected the merger to go through on the current terms. HBOS said it had no comment.

Lloyds is offering 0.605 of a new share for each HBOS share. Lloyds' shares were unchanged at 197.8p while HBOS were up 6.1p at 105.4p.

Lloyds is to raise £4.5 billion through a placing of shares at 173.3p, with the British government taking up any shares investors shun.