1st May 2015 10:39
LONDON (Alliance News) - Lloyds Banking Group PLC Friday lifted its guidance for 2015 and said its underlying performance in the first three months of the 2015 was strong as first-quarter pretax profit fell.
Led by Chief Executive António Horta-Osório, Lloyds has sold off assets, exited international operations and focused on the UK, where he expects the economy to grow this year. Horta-Osório played down fears about the uncertainty presented by the UK General Election next week.
"We continue to see the economy going quite well. We continue to see and expect GDP to grow between 2.5% and 3.0% this year. All of our key segments present a very favourable trend in terms of impairments. I don't think that the election will change these trends any time soon," Horta-Osório told reporters Friday.
The group's gradual return to full private ownership had been given a boost when the bank resumed dividends at a token 0.75 pence per share for 2014, as its pretax profit jumped to GBP1.8 billion from GBP415 million. The taxpayer's stake in the bank has come down to 20.95%, having been as high as 43% after a bailout in the midst of the global financial crisis of 2008-09.
Lloyds said a GBP660 million net charge related to the disposal of its stake in TSB Banking Group played a big part in causing the group's first-quarter pretax profit to fall to GBP1.21 billion from GBP1.80 billion.
As was the case in the first quarter of 2014, Lloyds did not increase its provision for the mis-selling of payment protection insurance. The group has been the worst affected by the scandal, having set aside GBP12.03 billion provisions over the years. The amount of the total provision remaining after the costs of compensating customers stands at GBP1.7 billion and is the bank's "best estimate" of future costs, though Culmer said that risks still remain.
On an underlying basis, which strips out costs related to operating and selling TSB and other provisions, first-quarter profit increased to GBP2.18 billion from GBP1.80 billion.
Underlying net interest income, the difference between interest received on loans and that paid out to savers, increased to GBP3.02 billion from GBP2.8 billion. Underlying income not relating to interest rates fell to GBP1.62 billion from GBP1.72 billion, which Lloyds said was a result of selling Scottish Widows Investment Partnership to Aberdeen Asset Management PLC in 2014 and of lower retail fees and commissions. It expects "broadly stable" non-interest income for the full-year.
Underlying costs, including fell to GBP2.29 billion from GBP2.30 billion.
The closely watched cost-income ratio improved to 47.7% at the end of March from 49.3% at the same stage last year, putting the group on track to meet its full-year target of having a cost-income ratio lower than the 49.8% recorded for 2014.
Underling impairment charges for bad or non-performing loans fell to GBP177 million from GBP431 million, helped by low interest rates and better economic conditions in the UK.
"I am confident that the successful delivery of our strategy through our simple, low risk, customer focused, UK retail and commercial banking business model will enable us to become the best bank for customers and deliver strong and sustainable returns for shareholders. It also remains our intention to pay an interim and a final dividend for 2015," Horta-Osório said in the bank's statement.
Chief Financial Officer George Culmer told reporters he was pleased with the group's improved financial strength, as the key common equity tier one ratio increased to 13.4% from 12.8% and the leverage ratio increased to 5.0% from 4.9% over the course of the first quarter.
"We've talked about having a capital requirement of about 12%. That's the sort of number we've talked about in terms of where we see the requirement. So 13.4% is in excess of that and puts us in a very strong position and gives us significant flexibility," Culmer said in a conference call with reporters.
The group improved its guidance for net interest margin in 2015 and said it expects a key measure of the quality of the loans it makes to customers will improve by more than the previously guided.
The bank's net interest margin, based on underlying figures, increased to 2.65% from the 2.32% recorded at the end of March 2014 and from 2.47% at the end of December that year. Lloyds had previously guided a full-year net interest margin of 2.55% and now expects to exceed that level.
Excluding TSB, which Lloyds will de-consolidate from its accounts on selling its remaining stake to Spanish lender Banco de Sabadell SA, the net interest margin increased to 2.60% from 2.27%.
The net interest margin increased as Lloyds sold off lower-margin assets and benefited from lower funding and liability costs, partly offset by lower asset pricing. The exchanges of debt that required Lloyds to pay higher levels of interest also supported the reduction.
Lloyds shares were up 6.5% at 82.40 pence on Friday morning, the top FTSE 100 gainer.
By Samuel Agini; [email protected]; @samuelagini
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