Lloyds Banking Group posts robust quarterly profits

by Ike Obudulu Last updated on June 21st, 2019,

London, UK : Britain’s Lloyds Banking Group (LLOY.L) on Thursday reported robust first quarter profits against a backdrop of cooling house prices and dwindling confidence among its business borrowers.

Lloyds, Britain’s biggest mortgage lender, reported an after tax profit of 1.2 billion pounds for the period, slightly below expectations of 1.39 billion pounds according to a company-provided average of analyst forecasts, but up from 1.15 billion pounds the previous year.

The bank reported underlying profit of 2.2 billion pounds, up 8 percent on the previous year and beating expectations of 2.05 billion pounds.

The results follow disappointing first quarter results from Royal Bank of Scotland and Barclays, who blamed their falling margins on intensifying competition in mortgages and slowing business investment due to Brexit uncertainty.

Lloyds said that while continuing uncertainty over Brexit could further impact the economy, it had seen no deterioration in the quality of assets on its loan book and reaffirmed all its financial targets.

The bank’s core capital ratio – a key measure of a bank’s financial strength – increased three basis points to 14.2 percent quarter-on-quarter.

Lloyds received a boost on Wednesday after regulators at the Bank of England said it could hold a lower capital buffer against future risks, giving Lloyds a further 1 billion pounds of excess capital which analysts speculated could be returned to investors.

The bank has been ramping up payouts for shareholders over the past two years as profits have improved and after returning to private ownership in 2017 following a state bailout during the financial crisis.

The group’s chief executive, António Horta-Osório, said: “While Brexit uncertainty persists, and continued uncertainty could further impact the economy, I remain confident that our unique business model, and in particular our market leading efficiency and targeted investment, will continue to deliver superior performance and returns for our customers and shareholders.”

The Lloyds results follow first quarter reports from Royal Bank of Scotland and Barclays, who both blamed falling margins on intensifying competition in the mortgage market and slowing business investment due to Brexit uncertainty.

PPI deadline

A deadline of 29 August 2019 has been set by the UK’s financial regulator for the final PPI mis-selling claims to be made.

More than £30bn has already been paid out in compensation across the industry as a whole, and major banks have set aside billions more for future claims.

In 2018, Lloyds set aside £750m for PPI claims. The latest £100m charge takes Lloyds’ total provision to £19.525bn.

As many as 64 million PPI policies were sold in the UK from as long ago as the 1970s. They were designed to cover loan repayments if borrowers fell ill or lost their job.

Not all of them were mis-sold, but sales were pushed on a huge scale to people who did not want or need them, or who could not use them.

Charges

Lloyds also booked charges of £126m for restructuring, and another £339m which included an estimated charge for the exit fee for ending its mammoth contract with asset manager Standard Life Aberdeen (SLA).

The bank declined to specify the exact charge set aside for the SLA contract break fee.

It comes after a tribunal recently ruled Lloyds did not have the right to end the hefty £100bn contract with SLA.

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