Lloyds Banking Group Profits Surge (LSE:LLOY)

UK banking group Lloyds (LSE: LLOY) has reported a strong set of first quarter results, further underlining the gulf between it and fellow bailed-out bank Royal Bank of Scotland (LSE: RBS).

Pre-tax profit nearly doubled to £1.3bn, against £654m in the first quarter of 2016. Profits were £973m in the final three months of 2016. The company shares were up over 3% to nearly 70p, approaching the levels last seen since before the EU vote.

In the face of much political and economic uncertainty, the bank is confident about the near-term outlook.

Chief executive António Horta-Osório said:

“The UK economy continues to benefit from low unemployment and reduced levels of indebtedness, and asset quality remains strong and is stable across the portfolio.”

Currently the shares pay around 5% in dividends, but some fund managers expect the 3p a share payout to be increased this year.

Bad debt charges fell even further, to 0.12% of outstanding loans, but the bill for payment protection insurance mis-selling has risen again, with an extra £350bn added to this total.

For the full-year the bank has reiterated the following guidance:

  • Net interest margin for the year now expected to be close to 2.80% (pre MBNA)
  • Asset quality ratio for the year now expected to be inside existing 25 basis points guidance (pre MBNA)
  • Expect 2017 capital generation to be at the top end of the 170-200 basis points ongoing guidance range
  • Targeting a cost:income ratio of around 45% exiting 2019 with reductions every year
  • Generating a statutory return on tangible equity of between 13.5 and 15.0% in 2019

The government still has a stake of below 2% in Lloyds but this is expected to be sold off imminently – the taxpayer has now recouped all the money sunk into the bank in the dark days of the credit crunch. Lloyds has also resumed dividends – a key plank of its recovery narrative – which again contrasts with RBS.

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