A quarter to forget for Lloyds Banking Group

by Richard Hunter from interactive investor |

The mood among Lloyds Banking investors remains gloomy after another "uninspiring" set of results.

Lloyds Banking Group (LSE:LLOY) has brought the curtain down on what has largely been a forgettable third-quarter earnings season for the banks.
 
The booked £1.8 billion charge for PPI is at the very top end of the previously guided range and all but wipes out the quarter's profit. Elsewhere, the themes are broadly similar to those reported by its competitors.

There is continued pressure on Net Interest Income, largely due to the current interest rate environment, impairments have risen by 31% and the capital cushion has also declined slightly, although still ample at 13.5%.

Underlying return on equity has also dipped, and Lloyds carries the additional burden of being seen as a pure play on the UK economy, which inevitably keeps a lid on prospects given the further delay to the Brexit conundrum.

Even without the PPI hit, underlying profits are down nearly 5% in the year to date, while pressure on asset margin remains and the mortgage market, in which Lloyds is a significant player, still suffers from intense competitive pressure.

More positively, the bank has provided a guarded but cautiously optimistic outlook, with the Schroders tie-up and the acquisition of the Tesco mortgage book likely to bolster income in due course.

The cost/income ratio of 47.6% remains comfortably sector-beating, loans and advances grew by £6 billion while the group's continued drive towards optimum efficiency is still on track.

There are also high hopes for the bank's investment in the digital platform where Lloyds is in a fairly dominant position.

Source: TradingView Past performance is not a guide to future performance

Despite the disappointment of the suspension of the share buyback programme to allocate monies to PPI, the bank nonetheless remains committed to shareholder returns and the current dividend yield of 5.8% is ample compensation for income-seeking investors.
 
The shares have had the benefit of a "Brexit bounce" of late, rising 9% in the last three months as perception switched to ruling out the likelihood of a no-deal Brexit. That particular cloud will not be lifted in the immediate future, and on balance the third quarter numbers were largely uninspiring.

Indeed, the shares have struggled to make much headway over the last year, adding just 1.4% as compared to a 2.8% rise for the wider FTSE 100.

Given the ongoing reservations around prospects for the UK economy, the market consensus has been recently shaved, now coming in at a cautious buy as Lloyds continues to search for a way out of the doldrums.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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