Britain's Lloyds to pay first dividend since rescue

By Matt Scuffham LONDON (Reuters) - Lloyds Banking Group is paying its first dividend in more than six years after reporting a rise in profit and improvements in its capital strength, a milestone in the bank's recovery after it was bailed out during the financial crisis. The bank, which was rescued at a cost of 20 billion pounds ($30.9 billion) to British taxpayers, said it would pay a dividend of 0.75 pence for the 2014 financial year. Chief Executive Antonio Horta-Osorio said Lloyds, which offered some of the highest dividends in Britain before the crisis of 2007-2009, intended to pay out at least half of its sustainable earnings in the medium term. Lloyds reported an underlying profit of 7.8 billion pounds, up from 6.2 billion the year before and ahead of the market expectations for a profit of 7.5 billion pounds. The bank said its core Tier 1 ratio, a key measure of its financial strength, rose by 250 basis points to 12.8 percent. "Today's results are another major milestone in the recovery of the British economy from the great recession and the bank bailouts," said Britain's finance minister George Osborne. The government will receive a dividend of 130 million pounds which Osborne said would be used to reduce the national debt. It has already raised nearly 8 billion pounds from the sale of shares in the bank, reducing its stake to below 24 percent. Industry sources say paying a dividend will help the government sell its remaining shares, making them more attractive and raising the prospect of a sale to private retail investors. [ID:nL5N0VQ3MK] Lloyds' last payment to shareholders was an 11.4 pence per share dividend for the first half of 2008, paid out in October of that year. Lloyds is further along the road to recovery than its bailed-out rival Royal Bank of Scotland, which on Thursday reported a hefty 2014 loss. [ID:nL5N0W01E1] RBS's turnaround has been hampered by investigations into past misconduct and a sale of the government's 79 percent stake remains some way off. CEO PAY PACKAGE CRITICISED Lloyds reported a net profit of 1.8 billion pounds but set aside a further 700 million pounds to compensate customers mis-sold loan insurance, taking its total bill for Britain's most expensive consumer scandal to over 12 billion pounds, the most of any bank. Shares in the bank rose 0.6 percent to 79p by 1055 GMT. CEO Horta-Osorio has turned Lloyds around since becoming its chief executive in 2011, simplifying the business and slimming down to focus on lending to British households and businesses and meet tougher regulatory rules on capital. But Labour lawmaker John Mann, who sits on parliament's Treasury Select Committee criticised the bank for handing Horta-Osorio a pay package for 2014 worth 11.5 million pounds. "It's obscenely high. The taxpayer hasn't got his money back yet. He's getting the benefits. Where's the money back for the taxpayer? Why's he getting so much and the taxpayer so little?," Mann told Reuters. Horta-Osorio also said he would accept shares worth about 7 million pounds awarded under a plan set out in 2012, but would not sell them until the government has sold more shares. "I am intending to keep these shares until the government stake is significantly further reduced, " he said. Lloyds said it paid staff 370 million pounds in bonuses for 2014, down 4 percent from 2013. Top managers were handed bonuses worth 30 million pounds.($1 = 0.6479 pounds) (Additional reporting by Steve Slater; Editing by Sinead Cruise and Keith Weir)