Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
Lloyds: PPI still bites as Q1 profits miss expectations
Compensation for customers mis-sold PPI continues to gnaw away at Lloyds profits, whilst it missed on top line revenues in what’s probably not the best quarter for the bank. Net interest income remains ok but we wonder if there is enough in here to continue the rally in shares YTD.
Lloyds took an additional
charge of £100 million for PPI in the first quarter, bringing its
total provision to very close to £20bn since the scandal first came to light.
Net income increased by 2% to £4.4 billion, which was
a little below the consensus forecast. Profits were flat at £1.6bn, which again
was below expectations. Doubts on credit risks are not going away, with asset
quality ratio up again to 25bps. Return on tangible equity improved to 12.5%,
above its cost of equity. CET1 dropped to 14.2% pre dividend.
Its net interest margin looks solid enough, holding at
2.91%, which compares favourably with peers. Cost cutting is helping the bottom line even if revenue
growth is not really there – cost to income improved to 44.7% with positive jaws
The company backed its full year outlook – NIM remaining
around 290 basis points, operating costs below £8 billion and a net asset
quality ratio below 30 basis points. Lloyds still expects a return on tangible
equity of 14-15% in 2019.
As previously stated, the problem with Lloyds is from its
very high exposure to the UK market, both unsecured and mortgage lending. It’s
really tethered to the UK economy – rising and falling in tandem with consumer
spending and the mortgage market, and doesn’t seem to be driving revenue growth
unless the economy is growing.
Shares skidded 2% lower after the results underwhelmed. After the PRA boosted the stock by cutting its capital requirements, it’s as you were.
Lloyds shares have outperformed chief peers Barclays and RBS in the last year.
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