Deutsche Bank bought Britain’s most expensive closed life book yesterday when it paid almost £1 billion for Lloyds TSB’s Abbey Life.

The bank beat competitors including Pearl Group, the company run by the entrepreneur Hugh Osmond, and the reinsurance giant Swiss Re to buy the business for £977 million.

The price is 104 per cent of Abbey Life’s embedded value, outstripping any previous value obtained from the sale of a closed life book. Lehman Brothers and Morgan Stanley advised on the auction.

Sources said that Deutsche Bank planned to build a collection of the so-called zombie funds to compete with established consolidators such as Mr Osmond and Resolution, the company in talks with Friends Provident to create an £8 billion group.

The sale came as Lloyds TSB revealed a £2 billion pre-tax profit for the six months to June 30, up 15 per cent on the same period last year. The bank pleased investors by announcing a 5 per cent increase in the interim dividend to 11.2p per share, the first rise in shareholders’ payouts for five years.

Eric Daniels, the chief executive, said that the bank’s earnings were rising fast enough to continue to improve the dividend while raising the dividend cover, which previously had been a concern for the bank.

Sir Victor Blank, the Lloyds TSB chairman, said that the increased handout showed that the strategy implemented by Mr Daniels when he became chief executive in June 2003 was working.

“There’s been a transformation not only of the culture of the business but of the dynamics,” Sir Victor said. “The results today really demonstrate the progress that’s been made.”

Mr Daniels said: “We’re squarely in phase two and that’s where we’re staying for now,” he said. The third phase will involve expanding the business by product or geography.

Lloyds TSB’s insurance business took a £57 million hit in the first half, with £45 million coming from widespread flooding in June. The bank said yesterday that it expected the bill from July’s flooding to be in the same range.

The bank, which has the biggest share of the British current account market, reported lower-than-expected costs from unauthorised overdraft charge refunds, paying out £36 million.

HSBC told investors on Monday it had paid out £116 million to customers who claimed back their charges. HSBC said that it had paid out every claim that it had received, but Mr Daniels indicated that Lloyds TSB had taken a tougher stance. “We have 16 million individual customers and you have to have some broad guidelines \ we treat every customer as an individual,” he said.

The chief executive said that Lloyds TSB would gain £1.15 billion from the sale of Abbey Life — £977 million from the sale proceeds and £175 million of capital no longer needed to support the business. He said that he had no plan to sell Scottish Widows, the bank’s open life company. “We think the combination of having Widows and the UK retail banking business is very synergistic and we intend to keep going with that,” he said.

Analysts at Collins Stewart described yesterday’s results as “some of the most positive Lloyds have posted in years”.

— A court hearing to decide whether bank customers can claim back millions of pounds in overdraft fees will not take place until early next year, it emerged in the High Court yesterday. The Office of Fair Trading is taking high street banks to court over their policy of charging customers at what many perceive as “punitive” rates for exceeding their overdraft limits. The OFT has filed proceedings against eight banks, including Lloyds TSB, Royal Bank of Scotland and Barclays.

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