Interactive Investor

ii view: expectations for shareholder returns rise at Lloyds

A sizeable capital cushion and a new CEO is developing strategy. We assess prospects. 

3rd November 2021 15:29

Keith Bowman from interactive investor

A sizeable capital cushion and a new CEO is developing strategy. We assess prospects. 

Third-quarter results to 30 September

  • Net income up 20% to £4.1 billion from Q3 2020
  • Pre-tax profit doubled to £2 billion from Q3 2020
  • Cost/income ratio improved to 48.3% from 56.9% in Q3 2020
  • Capital cushion of 17.2%, up from 16.7% in the prior Q2 quarter

Chief executive Charlie Nunn said:

"I am delighted to be introducing my first set of results as CEO of Lloyds Banking Group. It is very clear to me that the Group is a truly purpose-driven organisation with a real customer focus. The Group has a great franchise, an excellent digital proposition and a real depth of talent. 

“As we move into the final quarter of 2021, the Board, Group Executive Committee and I are developing the next evolution of our strategy and longer-term priorities.”

ii round-up:

Founded in 1765, Lloyds Banking Group (LSE:LLOY) is today home to household brand names including Lloyds Bank itself, Halifax, Bank of Scotland and Scottish Widows. 

It operates through the three core divisions of Retail, Commercial Banking and Insurance and Wealth.

For a round-up of these latest results, please click here.

ii view:

Having transformed since the financial crisis of 2008, Lloyds Banking Group is now largely dependent on the UK economy. Personal and business banking, along with life and non-life insurance, now provide its core activities. Its controversial acquisition of Halifax bank during the financial crisis added significantly to its mortgage loans, a product area which it has extended subsequently. 

During this latest quarter, its net open mortgage book grew by more than £15 billion. Under its push to engage digitally, it generated over 50% growth in Small to Medium Enterprise (SME) products originated via a digital source compared to the same period in 2020. During the pandemic, and with many staff working from home, it remains on track to achieve an 8% reduction in office space over 2021. Around 45% of its office leases are due to expire over the next five years. 

For investors, a slower than expected economic recovery going forward could require a return to bad debt provisions. Lloyds' dependency on the highly indebted UK economy also needs to be remembered.

But for now, bad debt provisions continue to move in the right direction, the bank’s strong management of costs continues, and a further improvement in its capital cushion (CET1) to 17.2% is comfortably above its target of 12.5%. This potentially enables enhanced shareholder returns, including dividends, in future. Lloyds shares currently stand on an estimated future dividend yield of around 4% (not guaranteed), with the new chief executive soon expected to detail his strategic plan. For now, and with the current analyst consensus estimate of fair value sat at 58p per share, there appear reasonable grounds for optimism. 


  • Dividend payment previously restarted
  • Improved capital cushion


  • Ongoing pandemic uncertainty
  • Low interest rates are considered broadly bad for bank profits

The average rating of stock market analysts:


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