Banks update on performance
Lloyds posts robust quarter as Barclays sees off rebel
Lloyds: strong financial returns (pic: Terry Murden)
Lloyds Banking Group reported a robust 8% rise in underlying profit of £2.2 billion for the first quarter, beating expectations and driven by increased net income and lower operating costs.
The figures come against a cooling housing market and cautious lending by businesses concerned the outcome of the Brexit negotiations.
Chief executive Antonio Horta-Osorio said he was confident in the bank’s ability to lead the market.
“In first three months of 2019 we have again delivered a strong business performance with continued strategic progress, increased statutory and underlying profit and strong financial returns,” he 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.”
Statutory profit before tax came in flat at £1.6 billion with higher underlying profit offset by movements in below the line items, including an estimated charge for exiting the Standard Life Aberdeen investment management agreement. After tax profit rose 2% to £1.2bn.
The bank announced a net interest margin of 2.91% while it cost:income ratio further improved to 44.7%.
Lloyds set aside a further £100m in PPI compensation charges, taking Lloyds’ total provision to £19.525bn. It booked £126m for restructuring charges and a contingency fund of £339m which includes an exit fee for controversially cancelling a contract with asset manager Standard Life Aberdeen to manage £109bn of Scottish Widows funds. The bank declined to specify the exact sum set aside for the break fee.
John Moore, senior investment manager at Brewin Dolphin, said: “Today’s results from Lloyds build on the good news about the bank’s capital guidance and reaffirm its as one of the financially strongest banks, paving the way for a potential share buyback or higher dividends.
“However, whether that happens will depend on the economic cycle and it’s worth noting that, in a departure from the bank’s last update, we have a statement on ‘Brexit uncertainty’ today. In any case, Lloyds’ net interest margin is stronger than many of its peers and its cost-income ratio is tidy.
“The beauty of Lloyds is in its simplicity, redoubled efforts on an efficient core business, and the strength of its balance sheet; but, Brexit clouds continue to hang over the entire banking sector, which may act as a drag on its share price.”
Barclays board battle
Activist investor Edward Bramson, who today called on Barclays to shrink its investment bank, failed to get sufficient backing to secure a seat on the board.
Only 12.8% of shareholder votes at the AGM backed his bid to become a director. However, the bank came under fire over pay for top bosses, with a third rejecting its remuneration report.
Mr Bramson argued that the bank does not generate enough profit to justify the large amounts of capital required to run it.
He has borrowed more than £1 billion enabling him to build a 5.5% stake, seen as a staging post to his ultimate desire to become chairman.
While he was expected to fail in his bid to get on the board, Mr Bramson’s argument is supported by last year’s figures. They show Barclays earned a return of 7% on the £26bn of shareholders’ money which supports investment banking, while it earned 12% on the £10bn allocated to retail banking.
Investment banking is not making the same returns as before the crash when banks made bets with their own money, known as proprietary trading. Following the crash, that practice was stamped out by regulators.
The Bank of England’s monetary policy committee voted unanimously today to leave interest rates on hold, its first policy decision since the postponement of Britain’s departure from the European Union.