Comment: Lloyds recovery looks on firmer ground

Martin Flanagan
Martin Flanagan
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IF FURTHER proof were needed, yesterday’s quarterly results from Lloyds show the bank has definitely turned the corner from the disaster of the crash and the ill-starred acquisition of HBOS. A 21 per cent jump in underlying pre-tax profits to £2.2 billion in the first three months of this year followed a decent profit in 2014.

The only reason for an 11 per cent dip in statutory pre-tax profits was because of a £660 million charge on the sale of TSB, itself an action that makes Lloyds a simpler, more streamlined bank.

The dividend has been restored, token at this stage but surely becoming more meaningful as 2015 and 2016 progress, and Lloyds’ capital cushions have been firmed again. The net interest margin continues to advance.

And the good news for Lloyds is that the continuing strength of the UK economy, even with the occasional blip like yesterday’s manufacturing figures, will put more wind in its sails.

The group is easily the most exposed of the big banks to the UK economy, given its dominant positions in areas such as current accounts and mortgages, as well as a scale insurance presence.

Chief executive Antonio Horta-Osorio is upbeat on prospects, and is not adrift from the feeling of many City economists that the economy will grow about 2.5 per cent, perhaps even 3 per cent, in 2015.

The pessimists question whether next week’s general election, the most uncertain in outcome arguably since the 1970s, may threaten that recovery.

But it doesn’t really ring true. GDP is affected more by the fundamentals of the economy, not the political buffetings of elections.

While things such as business investment or consumer appetite might be affected at the margins by some of the potential outcomes of Thursday’s vote, it is doubtful it would derail the momentum of recovery.

Lloyds can only benefit from that, and investor sentiment to it will also improve when, as seems likely, the second £10bn of taxpayers’ money is repaid by share sales over the next 12 months to go with the £10bn that the Treasury has already got back.

The bank is less affected by headwinds in some overseas territories than some of its British rivals, and is definitely much less affected by the vagaries of investment banking.

Lloyds has always had a consciously safer, more “boring” investment banking model, not just under this management but going back decades.

It creates a hostage to fortune to suggest the lack of big extra provisions from Lloyds in the latest results suggest it is also out of the woods on the wider sector’s litigation and misconduct issues.

But the signs look better than for some time that exceptional items will not scar the bank’s results anywhere near as much going forward. Lloyds is in danger of giving a taxpayer-backed bank a decent name.