- Revenue down 3% on prior year
- Pre-tax profit down 20%, below forecasts
- Buyback and new targets spur buying
It seems the market saved the best till last when it comes to reacting to results from the Big Four banks, with shares in Lloyds Banking Group (LLOY) gaining 2.5p or 4% to 65.3p even though earnings fell 20%, missing estimates.
A BRAKE ON PROFITS
For the year to December 2024, Lloyds reported a pre-tax profit of £5.97 billion, a drop of 20.4% from the previous year’s £7.5 billion and considerably below the bank-compiled consensus forecast of £6.39 billion.
Total income was 3.2% lower at £32.28 billion as net interest income dropped 7.7% to £12.28 billion and the net interest margin – the difference between the rate the bank charges for loans and the amount it has to pay on deposits – fell from 3.11% to 2.95%.
Nonetheless, chief executive Charlie Nunn was upbeat about the bank’s performance: ‘The group delivered a robust financial performance in 2024. Pleasingly and as expected, income grew in the second half of the year, supported by a rising banking net interest margin and momentum in other income. We also maintained discipline in costs, whilst asset quality remained strong.’
Nunn flagged the bank’s progress in generating £800 million of ‘additional’ revenue, against a target of £700 million, and in delivering £1.2 billion of gross cost savings through a reduction in head office space and more streamlined banking processes.
However, profit was hindered by a £700 million provision for the potential impact of the FCA’s investigation into motor finance commission agreements, which together with last year’s £450 million takes its contingency to over £1 billion, although that is very much at the low end of market forecasts.
OUTLOOK PLEASES
Investors were clearly more taken with the bank’s commitment to continue returning excess cash, including a 15% increase in the total ordinary 2024 dividend to 3.17p per share and a new £1.7 billion buyback.
There was a promise of more to come, too, as Nunn forecast the bank would generate a return on tangible equity of 13.5% in 2025 and greater than 15% in 2026, meaning capital generation of greater than 175 basis points and 200 basis points or which could be set aside for further buybacks.
Jefferies’ financial specialist Jospeh Dickerson called today’s results ‘a comforting set of numbers’ and suggested the 15% return target for 2026 meant analysts could need to revise up their net interest income forecasts.
Regarding provisions for motor commissions, Dickerson notes Lloyds is not intending to take any further charges this year although it has acknowledged the potential for ‘a very different outcome’ and the risk associated with the investigation may hang over the shares for a while longer.
