Profits at Lloyds Banking Group more than doubled in the first three months of the year, despite another hit for payment protection insurance mis-selling and the cost of compensating customers for fraud in the HBOS Reading branch.
The bank, which is Britain’s largest mortgage lender, shrugged off the uncertainty created by Brexit and what António Horta-Osório, chief executive, described as a “challenging” operating environment.
“The UK economy continues to benefit from low unemployment and reduced levels of indebtedness, and asset quality remains strong and is stable across the portfolio.”
Profits in the three months to the end of March doubled on the same period last year, to £1.3bn. After one-off items and other factors, underlying profits were flat at £2bn.
Taxpayers’ stake in the bank has now fallen from 43% to below 2% and last week Philip Hammond said the government had recouped the £20.3bn that was used to buy the stake during the 2008 crisis. Horta-Osório said this was a “source of pride” for employees at the bank.
The shares rose by 4.5% to 70p, remaining below the 73.6p average price per share at which the government bailed out the bank following the HBOS rescue in 2008, but buoyed by hopes of future dividend payments to shareholders.
Horta-Osório insisted the bank would compensate victims of the HBOS Reading fraud “fairly, swiftly and appropriately”. The bank has set aside £100m for the fraud, for which six people were jailed in February after a jury was told how they spent the proceeds on superyachts and sex parties.
The bank had previously warned it would take another £350m provision to cover the cost of PPI mis-selling, taking its total hit for this scandal to more than £17bn. There was a further £100m in unspecified misconduct charges.
Horta-Osório is facing speculation that he will leave once the taxpayer stake has been completely sold but he said he was happy at the bank, which is in the throes of taking over credit card company MBNA.
The Bank of England has warned about the rapid growth in consumer borrowing as Britons rack up debt on credit cards, car purchase schemes and personal loans but Horta-Osório said this was not a problem for Lloyds, which also also owns Lombard vehicle finance.
“Consumer credit is increasing from a very low level,” said Horta-Osório.
The bank has benefited from being able to borrow cheaply on the wholesale markets, the Bank of England’s funding schemes, and attracting deposits from commercial customers which has helped bolster its profitability.
Its closely watched measure of profitability – net interest margin – was better than analysts had expected. “Net interest income surpassed expectations for the first time in ages,” said analysts at Jefferies.
Gary Greenwood at Shore Capital said the bank had also increased its forecasts to generate capital, which he said supported his thesis of a full-year dividend of 5p per share – higher than the consensus of 3.8p per share.
Steve Clayton, manager of a Hargreaves Lansdownincome fund, said: “Lloyds’ ability to generate capital, and its limited needs to retain much of that within the bank mean that it has great dividend potential. Sure enough, they have raised their guidance for capital generation which bodes well for the prospects for additional special dividends.”
But Lloyds’ revenue increased by just 1% and its overall lending slipped by 1%. Horta-Osório is implementing a three-year cost-cutting programme to axe 12,000 jobs from the bank’s 75,000-strong workforce and is closing 400 branches this year.
This article was written by Jill Treanor, for theguardian.com on Thursday 27th April 2017 08.45 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010