ii view: Lloyds Bank friendless on results day

Lloyds continues to bear down on costs to offset tough market conditions, but shares have slumped.

Half-year results to 30 June 2019

• Net income down 2% to £8.82 billion
• Pre-tax profit down 7% to £2.89 billion
• Earnings per share down 7% to 2.7p
• Interim dividend up 5% to 1.12p per share

Chief executive António Horta-Osório said:

"The group has continued to make strong strategic progress during the first half of 2019 and delivered a good financial performance with market leading efficiency and returns. The economy has remained resilient although economic uncertainty has led to some softening in business confidence as well as in international economic indicators. In this environment our strategy continues to be the right one and we are well placed to support our customers and continue to help Britain prosper."

ii round-up:

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

In the wake of the 2008 financial crisis, Lloyds has restructured to become a UK-focused bank with over 2,000 branches.  

In May, the bank announced its intention to switch and start paying dividends on a quarterly basis, beginning the first quarter of 2020. 

The bank's quest to simply do the basics well is ongoing. The digitalisation of its customer offering is high on management's agenda, helping it to potentially achieve its target of keeping operating costs below £8 billion for 2019. 

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

ii view:

Lloyds has come a long way in the past 10 years. Its journey through the financial crisis and back to the relatively dull but sturdy bank it once was is largely complete. Online banking and a repositioning of its asset management proposition now occupy chiefs day to day, with cost reduction the core underlying theme. 

For investors, Lloyds' exposure to the UK economy and what Brexit will mean head the risk list. The UK must avoid a 'hard' Brexit and grow the economy faster than it is currently for Lloyds shares to stage a share price recovery. Interest rate cuts will put further pressure on margins. If Brexit goes badly, investors will require even more patience, perhaps compensated for by the attractive prospective dividend yield of around 6%.

Positives

• Operating costs being cut
• Attractive dividend yield
• Passed the Bank of England stress test in 2018

Negatives

• Exposure to UK economy and Brexit generate uncertainty
• Additional charge of £550 million taken for Payment Protection Insurance (PPI)
• Low interest rates bad for banks

The average rating of stock market analysts:

Buy