24th Oct 2014 08:31
LONDON (Alliance News) - TSB Banking Group PLC Friday got UK bank earnings season underway, reporting an increase in third quarter pretax profit from the second quarter, as lower income was more than offset by a drop in operating expenses and less money being set aside for bad customer debts.
In a statement, the bank, in which Lloyds Banking Group PLC still has a 50% stake, said it made a GBP33.1 million pretax profit in the three months ended September 30 and GBP161.6 million in the first nine months of the year as a whole. It made a GBP25.7 million pretax profit in the three months ended June 30.
Net interest income, the difference between what TSB pays out in interest on savings and what it receives on loans, fell to GBP199.3 million from GBP201.6 million in the previous quarter. Operating expenses were 7.1% lower at GBP167.9 million.
However, excluding the cost of the full-year Financial Services Compensation Scheme recognised in the second quarter, underlying operating expenses increased by 2.8% due to the ongoing establishment of the group's support functions and higher investment spend. Costs are expected to be around GBP700 million for the full year, TSB said.
The impairment charge fell by 3.4% quarter on quarter to GBP23.0 million, aided by the improved housing market and reduction in unemployment rates.
In a research note, Investec analyst Ian Gordon, who has a 'Buy' recommendation on the stock and a price target of 295 pence, said the decrease in impairments "offers a positive read-across to UK domestic banks in general and Lloyds in particular".
TSB said its share of current account gross flow in the quarter was 9.7%, above its 6% long-term target, meaning that nearly one in 10 of customers who opened new bank accounts or switched during the last quarter chose the banking group.
It also said the build of its mortgage intermediary channel remains on track to launch in the first quarter of 2015, with the absence of the channel being cited as the primary reason net lending to its franchise customers fell by GBP300 million to GBP19.1 billion in the third quarter.
The bank reported a pro-forma fully loaded Common Equity Tier 1 capital ratio of 18.8% at the end of September, an increase from 18.2% at the end of the second quarter.
In a conference call with journalists, Chief Executive Paul Pester said the bank is pre-capitalised for the anticipated growth in its balance sheet.
"Our absolute focus is on growing our business organically. If the right set of assets came along we'd look at them," Pester told journalists.
However, he doesn't foresee an acquisition of assets, such as a portfolio of mortgages or other loans, before the end of the calendar year.
"We're very busy on preparing TSB to re-enter the mortgage channel," Pester said, adding that he isn't aware of any particular asset opportunities at the moment.
Lloyds sold 38.5% of TSB in an initial public offering in June, before selling a further 11.5% stake in September. Lloyds must sell the rest of its stake in TSB by the end of 2015 in order to comply with European rules that came into play as a result of the state aid received during the financial crisis.
Lloyds itself is due to report third-quarter numbers on Tuesday, along with a strategy review in which it is expected to disclose plans to make thousands of job cuts over a three-year period as it looks to automate its customer-facing services.
Standard Chartered PLC is due to report on the same day as Lloyds, followed by Barclays PLC on Thursday and Royal Bank of Scotland Group PLC on Friday.
HSBC Holdings PLC is reporting on November 3.
TSB shares were up 1.5% at 263.42 pence Friday morning, one of the best-performing stocks on the FTSE 250.
By Samuel Agini; [email protected]; @samuelagini
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