- Corporate clients withdraw funds
- Guidance is unchanged for the year
Lloyds Banking Group (LLOY) seemed to stumble at the second furlong after a 9 per cent fall in net income led to lower reported quarterly profits before tax of £1.62bn, down from £2.26bn at this point last year. What has become clear as the year progresses is that depositors are actively looking for better deals on their savings, with deposit churn seen particularly from Lloyds’ corporate clients.
Customer deposits of £469bn decreased by £2.2bn, with growth in retail deposits of £1.3bn offset by a reduction in commercial banking of £3.5bn. Loans and advances to customers reduced to £449bn, primarily due to expected reductions in UK mortgage balances, given the refinancing of the higher liabilities towards the end of last year.
The result of this churn, combined with lower loan advances as consumers avoided taking out higher priced debt, was that net interest income was down by 11 per cent to £3.04bn, with a similar 11 per cent rise in operating costs for the quarter to £2.7bn. The end effect was that the bank’s return on tangible equity tumbled to 13.3 per cent from over 19 per cent at this point in 2023.
The bank also recognised provision costs of £25mn for remediation. There were no further charges relating to the potential impact of the Financial Conduct Authority (FCA) review into historical motor finance commission arrangements, with the FCA saying it will update in September
Peel Hunt points out that Lloyds is on track to meet all its 2024 guidance, although the broker did say that the profit mix in the first quarter was “sub-optimal”. However, the outlook is broadly stable for Lloyds as the current interest rate cycle reverses.
Last IC view: Hold, 43p, 22 Feb 2024
