Lloyds Banking Group Plc shares slipped after the bank’s guidance for net interest margin disappointed analysts, outweighing the announcement of a £2 billion ($2.4 billion) buyback.
(Bloomberg) — Lloyds Banking Group Plc shares slipped after the bank’s guidance for net interest margin disappointed analysts, outweighing the announcement of a £2 billion ($2.4 billion) buyback.
Pretax profit rose to £1.76 billion in the fourth quarter, below a Bloomberg-compiled estimate, with the British lender taking a £465 million charge to cover loans that could default. Net interest margins rose to 3.22%, helped by rapidly rising interest rates.
With competition increasing in the mortgage market, central bank rates potentially at their peak and the UK economy skirting recession, Lloyds said it expects net interest margins to be greater than 305 basis points this year. That’s up from its previous guidance of 280 basis points but below analyst estimates.
“There are some very specific areas where we’re seeing customers start to miss early payments but it’s still, by product, significantly below or below the levels we saw pre-Covid. So very resilient customer behaviour,” Chief Executive Officer Charlie Nunn said in an interview with Bloomberg TV. He added that “less than 1% of our customer base” are struggling to make ends meet.
Chief Financial Officer William Chalmers said on a call with journalists that he expects the bank’s net interest margin to drop over the course of the year.
Lloyds also said operating costs this year will be about £9.1 billion, higher than before, and increase to £9.2 billion in 2024. Shares fell 2.8% at 8:55 a.m. in London.
Alongside the buyback, Lloyds also unveiled a final dividend of 1.6 pence per share, becoming the latest bank to reward investors even as it felt the effects of soaring inflation on its customers and its cost projections. The bank’s assumption for UK GDP growth in 2023 fell to 0.1% at the end of 2022, down from an expectation of 0.4% at the end of September.
Britain’s biggest mortgage lender is exposed to the slowing housing market as surging rates make repayments more expensive for borrowers on new or variable rate loans. Lloyds’ total loans and advances barely changed in the quarter and now stand at £454.9 billion. Commercial deposits fell.
Other Key Figures:
- CET1 ratio, a key measure of capital strength, stood at 15.1% at the end of 2022
- Customer deposits of £475.3 billion, broadly stable on a year ago
- Return on tangible equity of 13.5%, expected to rise above 15% by 2026.
- Staff bonus pool of £446 million, up 12% on a year ago. CEO Nunn was paid £3.77 million, lower than a year ago when the bank bought out unvested awards from his previous role.
What Bloomberg Intelligence Says
Lloyd’s 4Q NII beat fails to inspire, with 2023 net interest margin guidance of more than 3.05% vs. 3.15% consensus, as intensifying competition outweighs the impact of higher rates on NII generation. The 30-bp cost-of-risk target (vs. 35-bps cosnensus) confirms asset quality remains strong. The £2 billion share buyback is in-line with our scenario analysis.
Jonathan Tyce, senior banks analyst
(Adds CEO interview quote, analyst reaction from fourth paragraph.)
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