- Earnings per share top forecasts
- Full-year outlook maintained
- Surplus cash not handed to investors
The UK’s biggest mortgage lender Lloyds Banking Group (LLOY) posted a positive third-quarter trading update and kept its full-year guidance, but investors appeared disappointed there was no increase in the share buyback target.
After initially falling 2.5% to 39.5p, the shares steadied to trade flat at 40.6p in mid-morning dealings as buyers returned.
SO FAR SO GOOD
Overall, Lloyds delivered a solid set of third-quarter results with net interest income up 1% to £3.44 billion, in line with estimates, despite the net interest margin dipping to 3.08% from 3.14% at the half-year stage.
Operating costs rose 4% to £2.3 billion, but there was positive news on credit costs with the provision for bad loans falling to £187 million from £668 million last year.
In addition, a much lower charge for volatility – just £120 million instead of more than £1 billion last year – meant pre-tax profit leapt from £576 million to £1.86 billion, EPS (earnings per share) jumped from 0.6p to 2p, ahead of analysts’ forecasts, and return on tangible equity climbed from 4.2% to 16.9%.
Commenting on the lower charge for bad loans, the bank said asset quality was ‘resilient, with credit performance across portfolios largely stable in the quarter and remaining similar or favourable to pre-pandemic experience’.
In other words, it isn’t seeing any major signs of stress among consumers or businesses despite the record rise in interest rates and the cost-of-living crisis.
BIG EXCESS CASH PILE
The bank reiterated its full-year forecasts for a net interest margin of more than 3.10% against 3.22% in the final quarter of 2022, a return on tangible equity of more than 14% against 13.5% previously and operating costs of around £9 billion, in line with last year.
It also revealed it had £2.4 billion of excess capital above its 13.5% return target, or the equivalent of around 9% of its current market cap of £25.7 billion.
Given such a large excess cash pile, some investors and analysts were disappointed the bank didn’t increase its share buyback programme from the current ‘stale’ target of £2 billion, announced back in February, as one analyst put it.
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