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The bank set aside £57mn to cover bad loans, much lower than the £243mn in the same period last year, reflecting improvements in the economic outlook for 2024. The group revised its expectations for unemployment and now expects a 1.5 per cent rise in house prices this year.
Lloyds’ operating costs were up 11 per cent, in part due to an “elevated” severance charge of £100mn as the lender embarked on a restructuring plan to increase its focus on digital. The bank said last month it would cut jobs in its risk function, after management found it was a “blocker” to the transformation plan.
In the bank’s previous quarterly results in February, it set aside £450mn to cover the costs of an industry-wide probe of potential car finance mis-selling.
The lender said on Wednesday that it had taken no further charges related to the probe, ahead of an update by the Financial Conduct Authority in September.
Profits at Lloyds Banking Group fell 28 per cent in the first quarter, as a windfall from higher interest rates for the UK high street bank continued to wane.
Lloyds said pre-tax profits fell year on year to £1.6bn from £2.3bn, broadly in line with analysts’ expectations. Quarterly revenues dropped to £4.2bn, just below market expectations of £4.3bn.
Lloyds’ net interest margin (NIM) — the difference between the interest it charges on loans and the rate it pays on customer deposits — fell to 2.95 per cent from 2.98 per cent in the previous quarter.
The bank said it continued to expect an average NIM for its banking operations of 2.9 per cent this year, in line with previous expectations, despite signals there would be fewer central bank rate cuts than previously expected.
Chief financial officer William Chalmers said the bank continued to expect three base rate cuts by the Bank of England, with the first one expected around the middle of the year.
UK high street banks have benefited from rising rates as the Bank of England has attempted to bring down inflation. However, competition in the savings and mortgage markets and expectations of rate cuts have weighed on interest margins. Banks have also come under pressure to pass on higher interest rates to savers, further squeezing margins.
Lloyds’ total lending fell £1.2bn to £448.5bn in the first quarter, with its mortgage balance shrinking by £1.6bn. The group however flagged a rise in mortgage applications in the first quarter.
Its customer deposits were about £470bn at the end of the first quarter, a decrease of £2.2bn compared with the previous three months driven largely by balance reductions from smaller businesses while consumers moved money to savings accounts in a fiercely competitive market.
Reacting to a Bank of England warning about banks’ exposure to private equity, Chalmers said regulators’ concerns were “understandable” given the growth of the non-banking financial sector in recent years.
However, the chief financial officer reiterated the bank’s commitment to financing the sector and said it was “careful in all matters risk”.
“We do believe that private equity has an important role to play in terms of financing British industry,” he said, adding that Lloyds’ role in that was “consistent with our ambition to help Britain prosper”.
The group set aside £49mn to account for future losses in its commercial ba
99 % of posters predicting share prices are talking their own book ....those who predict very low prices I think you will find have a short gone badly wrong , or sold too early & desperate to get back in
There you have it
Perhaps this might give the LLoyds board a kick up the Jackys to start delivering on their promises to deliver great returns to shareholders , and Im not talking about buybacks , Im talking about money in our pockets
If they dont come up with the goods they will look a damp squib in comparison
We live in hope .
“The responsibility has been pushed towards the banks but the brokers were involved in this process. From a lender’s point of view, these lenders have been held to the fire somewhat by brokers.”
While the official investigation may be ongoing, stock analysts have been quick to map the likely fallout.
According to HSBC, Lloyds is the most exposed because of its ownership of Black Horse. Estimates as to how much it may cost Lloyds range from £1.3bn to £2.4bn.
Investors are likely to raise the issue with Lloyds chief executive Charlie Nunn this week when the bank delivers its annual results.
Nunn is expected to reveal a big buyback of shares, with a £2.2bn payout forecast by the City. However, concerns about the car finance issue mean analysts are expecting the bank to register some form of remediation charge.
Lloyds is not the only bank involved. The ombudsman has also taken aim at Barclays, which made loans through its subsidiary Clydesdale Financial Services, trading as Barclays Partner Finance.
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The bank was ordered to pay compensation last month after the dealership failed to tell one customer, referred to as Miss L, about commissions during her car purchase in 2018.
Barclays is not expected to be as exposed as Lloyds because of its smaller presence in the market. According to HSBC, Barclays had a market share of just 2.5pc.
Shore Capital analyst Gary Greenwood said Barclays’ “tiny exposure” means settling the matter would likely be a “rounding error” for the bank.
Natwest on Friday said it had no exposure to car finance, while Santander has said it is too early to tell.
A Barclays spokesman said it welcomed the FCA review, adding: “Any customers that have questions regarding the circumstances of their car financing loan should contact us directly.”
A Black Horse spokesman: “We are currently reviewing the recent FOS decision and will support the FCA with the upcoming industry review.”
When Mrs Young spent over £7,600 on a used car in 2016, little did she know the tsunami of woes she was about to unleash on the UK banking sector.
That’s because Mrs Young was ‘unfairly’ sold a loan to pay for her car.
Lloyds Banking Group’s finance arm, Black Horse, was the lender involved and had paid a commission to the car dealership to increase the rate on Mrs Young’s loan.
Mrs Young, whose first name has not been disclosed in case documents, subsequently challenged the terms of the loan. Her experience has become a test case at the centre of a major investigation into whether banks knowingly ripped off customers through mis-sold motor finance.
The Financial Conduct Authority (FCA) has launched an investigation into the matter and is expected to report back in September.
The inquiry has sparked fears that banks could be facing a new PPI-style scandal that could drag on for years and prove hugely costly.
Estimates as to just how costly vary: Citi predicts up to £9bn of possible charges for banks. HSBC analysts say the issue could cost as much as £16bn.
Last week merchant bank Close Brothers, which offered loans to car buyers across 4,000 dealerships, axed a £100m dividend over fears about the scale of the FCA investigation.
“The banks are in this holding pattern because it’s yet to be determined whether there is systemic harm with the discretionary commission models,” said Kate Robinson at Avyse Partners, which advises lenders on regulatory issues.
Like many drivers, Mrs Young had bought her car using a loan from Black Horse, which controls 20pc of the car finance market. It had been arranged at her car dealership by the salesman, who was also a regulated loan broker.
Unbeknown to her, the salesman stood to earn a secret commission if Mrs Young agreed to a higher interest rate on her loan. She had already been turned down for four other loans, making her more vulnerable to accepting the deal.
Mrs Young ended up paying hundreds of pounds more than she otherwise would have done, according to the Financial Ombudsman Service (FOS),
Her compensation case, brought by law firm Bott and Co, was upheld last month because she wasn’t told about the arrangement. She was awarded £630.
While her award is comparatively small, the scale of the car finance industry means the issue could prove hugely costly if mis-selling is uncovered on a market-wide scale.
Mrs Young was one of thousands who took part in a car finance lending boom during the 2010s. Gross lending for private car sales at dealerships almost tripled between 2011 and 2018, from £14bn to £47bn according to HSBC.
The FCA has for now blocked any further compensation claims until its investigation is complete. It is looking at car loans from as far back as 2007.
Robinson says the issue is not “black and white”.
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For multiple reasons, buybacks have traditionally been less popular in European banking: investors in Europe have liked income stocks, so have preferred dividends; and since 2008 European regulators have been focused on the steady build-up of capital levels and have thus been unsympathetic to anything that would undermine that trend.
Over the past year, though, supervisors have become more receptive to an easing of equity demands. They were heartened by the events of early 2023, when eurozone and UK banks proved resilient in the face of the pressures that toppled regional lenders in the US and Credit Suisse in Switzerland. With existing capital levels deemed sufficient, mass buybacks have become feasible.
At the same time low share prices in many European sectors, but particularly in banking, have made buybacks a much more attractive option for banks themselves — especially given the absence of obvious opportunities to invest and grow instead.
For the first time ever, the share count of European banks is shrinking
Analysts at Berenberg point out that total returns from shareholder payouts could reach 14-19 per cent a year in 2024-2025, even before capital gains. Last year the sector clocked up a total shareholder return of 28 per cent.
Among those banks to watch this year will be UBS, where payouts should jump thanks to the vast $29bn “negative goodwill” gain made from its rescue of Credit Suisse on the cheap. Stockholm-based activist Cevian Capital recently made a €1.2bn investment in UBS in the hope that the share price will double in three to five years. UniCredit, a standout performer last year in terms of its share price recovery, is set to continue its efficiency drive to maximise returns. Analysts suggest the likes of ING, HSBC, Lloyds and the big Irish banks could also make outsized payouts.
For stock re-rating momentum to gather, though, the sector needs to attract more than a quirky Swedish hedge fund, and win over the mainstream US asset managers who have been put off by years of European bank underperformance and policymaker surprises.
We are still only a few weeks into 2024. But European banks may be tempted to think Gorman’s December prophecy is already coming true. Since January 1, all the European banks he name-checked have outperformed Morgan Stanley, not least because the group he still chairs reported disappointing fourth-quarter results. If they can maintain decent earnings and also deliver on analysts’ dividend and buyback expectations, they might just bear out
Some analysts are arguing that a new era of capital returns to shareholders has dawned
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When the Financial Times interviewed James Gorman just before Christmas, the then-Morgan Stanley chief executive was clear: the past decade had produced huge growth for Wall Street groups like his, while European competitors had been left behind. But, in an apparent gesture of festive generosity, he sounded a bullish note for the likes of UBS, Deutsche Bank and Barclays. “I don’t think [over] the next decade the gap will be as large,” he said. “I think there’s opportunities for the Europeans.”
There is no obvious fundamental driver for any such re-rating: the European economy is downbeat; net interest margins have peaked, with both the European Central Bank and the Bank of England widely expected to begin cutting interest rates at some point in 2024; and bad debts are likely to increase, as the delayed impact of higher rates over the past year or two filters through to corporate and individual borrowers alike.
And yet there may be a valid technical trigger for higher European bank valuations: some analysts are arguing that a new era of capital returns to shareholders has dawned. After a decade during which US banks’ payout ratios — share buybacks and dividends as a percentage of earnings — trounced those of European rivals, the numbers are starting to look very similar, Autonomous Research points out. Since 2021, the ratio distributed by European banks has surpassed the historic norm of about 40 per cent and could now settle at closer to 80 per cent, it says.
Stronger earnings, combined with the willingness of European regulators to authorise a reduction in bank share counts for the first time ever helped the combined tally of dividends and buybacks by European banks to jump to €121bn for 2023 from €90bn in 2021.
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Future dividends are expected to remain broadly in line with the historic average, but overall payouts will be substantially topped up by share buybacks — long a US corporate tradition, thanks to generous tax breaks
"Jefferies analyst Joseph Dickerson said he was disappointed that management had “stuck to its stale [£2bn] full-year buyback policy” and pointed out that the lender had another £2.5bn in excess capital. Chalmers said the board would reconsider increasing the dividend and buybacks at the end of the year. "
longtimeinvestor , your reputation on this board goes before you ...it still doesnt explain - why you have to be such an ****@hole about everything .
Try and stop yourself from repling , I know how hard that will be for you
Hi fleccy , I get the impression that Nunn is working for the big retail investors & not so much for the small private investors ...May work out in the end but so far he's hardly acknowledge us ( it leaves a bad taste )
BlindLeadBlind , please go the the shareholders anaual conference & shout out to the new CEO we want a return on our investment not more promises year after year that never furfilled , hes supposed to be working for the shareholders .
UK banks set for bumper profits despite mortgage market freeze
October 1, 2022 by Jnews
The UK’s biggest banks are set to make bumper profits from rocketing interest rates even as they pull mortgage products from the shelves and leave savers with meager returns on their deposits.
The financial turmoil sparked by Chancellor Kwasi Kwarteng’s “mini” Budget has seen markets betting interest rates in the UK could peak at 5.8 per cent next spring, creating a bonanza for high street lenders who will rake in returns for holding nearly £900bn of deposits at the central bank.
“There’ll be an embarrassment of riches — bank margins will look very wide in the third quarter,” said one senior banker, describing it as “a cha-ching moment”.
The Bank of England has already pushed interest rates up to 2.25 per cent from a record low of 0.1 per cent during the pandemic last year, as it attempts to fight inflation.
The UK’s four largest banks — Barclays, HSBC, Lloyds and NatWest — have roughly doubled their reserves over the past three years and held nearly £900bn in the central bank at the end of the first half of 2022, yielding almost £20bn at the current base rate.
Each additional 10 basis point rise would add close to £1bn in net interest income a year.
The boost to banks’ bottom lines came as more than 1,600 mortgage products were withdrawn by lenders over the course of the week following market upheaval after Kwarteng’s fiscal event, prompting the Financial Conduct Authority to contact banks as would-be borrowers were left in the lurch .
High street lenders have also failed to pass on their gains from rising base rates to savers, creating what one senior banker called a “two-tier market” as smaller competitors offered more competitively priced products.
Barclays pays 0.25 per cent on its everyday easy access savings account from £50,000 to £1mn, while NatWest’s instant saver offers 0.4 per cent. By contrast, Yorkshire Building Society, which is on the best buy table of highest rates, pays 2 per cent. Chase UK, JPMorgan’s digital bank, offers 1.5 per cent on savings of up to £250,000.
For European and UK banks, the rapid rise in interest rates as central banks battle inflation marks a reversal in fortunes after a decade in an ultra-low rate environment and lagging behind US peers.
About 85 per cent of the sector beat analyst estimates for second quarter pre-tax profits, as higher rates improved net interest margins — the difference between what a bank pays for deposits and what it earns from loans and securities.
The largest domestic banks — NatWest, Lloyds and Barclays — are estimated to increase revenues by £12bn from 2022 to 2024, according to Jefferies. UBS analysts said that a 0.5 percentage point increase on the rate curve would increase profits before provisions by 3 to 4 per cent for UK banks.
But shares in the UK’s largest banks have fallen between 7 and 12 per cent over the past month, pressured by the Russian
As part of the restructuring, a “customer affordability” team had been created, with the aim of more effectively assessing customers using digital services, the memo stated. The move brings together expertise across products into one team.
The bank has also formed an “embedded finance” division, focused on payment options for customers shopping online. The note said: “We will find growth in new areas of payments, working with retailers more closely than ever before.”
It added the team would “understand and navigate the fast-paced payment landscape as new competitors arrive and customers expect a level of ease and embedded payment options that will continue to change at pace”.
However, a few appointments have yet to be made in the new structure, including someone to oversee the credit card business, where it has the second-largest market share and includes the MBNA brand.
“Whenever you get changes in management, it does create some uncertainty,” said Gary Greenwood, an analyst at Shore Capital.
Lloyds said: “The business unit structures have been designed with our future priorities at the forefront of our mind to help us to achieve our purpose of Helping Britain Prosper. As part of this, we have considered how we want to work in the future and where we want to grow, focus and change our business.”
Lloyds Banking Group PLC
Lloyds reshuffles bankers as part of chief’s new strategy
UK-focused lender attempts to diversify away from mortgages
Lloyds Banking Group has formed an ‘embedded finance’ division, focused on payment options for customers shopping
Lloyds Banking Group is losing two of its most senior retail bankers and restructuring the business, according to an internal memo and people familiar with the situation.
An internal memo sent to staff said that Stephen Noakes, transformation director and a former mortgage director, will leave the lender after 15 years, having “decided that now is the right time to make his next move and to take on external opportunities”.
Vim Maru, group director of the retail bank, left on Friday, according to people familiar with the situation. His departure, which was announced earlier this year, will lead to his role being split up as part of the restructuring.
Elyn Corfield, managing director of consumer finance, will become group director for business and commercial banking and will join the executive committee, the memo stated.
The memo came after chief executive Charlie Nunn said that £4bn of investment would be made over five years as part of the new strategy, which the bank predicts will add revenues of £1.5bn by 2026.
The plan is to diversify Lloyds’ income away from mortgages, where it has the largest market share, to business less dependent on interest rates, such as insurance and wealth management, while digitising operations to cut costs and improve returns.
Lloyds sent the notice to staff with details of the reorganisation, which comes into force on Friday. Nunn, who joined the bank last August, first announced an overview of the plan in February to focus on areas where the bank can “grow”.