Lloyds Banking Group shares fall as results disappoint: NatWest sees taxpayer stake cut

Bank of Scotland owner Lloyds Banking Group has reported a fall in profits as the lending giant sets aside additional money for bad debts amid ongoing economic uncertainties.

Shares in the FTSE-100 group dipped in morning trading on Thursday as it reported pre-tax profits of £1.52 billion for the three months to the end of March, down 7 per cent on the £1.63bn generated a year earlier.

It set aside £309 million for impairment charges, up from £57m a year ago, including £100m for potential borrower defaults as the tariff hikes unveiled by US President Donald Trump have led to worries over the worldwide economic outlook.

The landmark Scottish headquarters of Bank of Scotland/Lloyds Banking Group on The Mound, Edinburgh. Picture by Jane Barlow

In its results announcement, the bank noted: “Initial non-UK tariffs announced in the first few days of April and the immediate market response were larger than expected.”

But in its forecast for the UK outlook, it said it is predicting a “slow expansion in gross domestic product and a modest rise in the unemployment rate alongside small gains in residential and commercial property prices”.

It added: “Inflationary pressures remain persistent, but gradual cuts in the UK bank rate are expected to continue during 2025.”

The quarterly bank reporting season is now in full swing with Royal Bank of Scotland parent NatWest Group due to update investors on Friday. It has now moved another step closer to resuming full private ownership after the taxpayer’s stake in the bailed-out lender dropped below 2 per cent.

Lloyds Banking Group is the UK’s largest mortgage lender.

Lloyds, which is the UK’s largest mortgage lender and also owns Scottish Widows, stuck by its guidance for full-year results in the face of “recent market volatility and economic uncertainty”.

Charlie Nunn, group chief executive, said: “In the first quarter of 2025, the group delivered sustained strength in financial performance. We remain confident in the outlook for Lloyds Banking Group and in our 2025 and 2026 guidance.”

Chief financial officer William Chalmers said the bank had limited exposure to the US and tariff impacts, but that it does provide some lending to exporters to the US, albeit less than 1 per cent of its lending balance sheet.

He added there “may be some dampening on corporate activity going forwards” from the trade war. Concerns over a global slowdown have also seen rate cut expectations increase.

The group’s first-quarter results showed a lending boom as borrowers sought to complete on house purchases ahead of the stamp duty change from the beginning of April.

Mortgage lending grew by £4.8bn as it saw 19,000 completions in the first three months of the year, with customers racing to beat the stamp duty deadline. It said March 27 was its biggest ever single day for completions, with nearly 5,000 on that day alone.

The group did not book any further provisions for the motor finance scandal. Lloyds has previously put by more than £1bn to cover the costs of potential mis-selling of car loans with hidden commission payments. The industry is now waiting for a Supreme Court decision on the matter and any compensation pay-outs are not likely until at least the end of 2025.

John Moore, senior investment manager at wealth firm RBC Brewin Dolphin, said: “Lloyds’ results are from a similar playbook to its peers earlier in the week - all in all, it has delivered a resilient, but mixed, set of figures.

“Lloyds is the most exposed of the UK banks to Britain’s economy, which could present challenges if growth doesn’t pick up. But the big question mark hanging over the bank is the potential cost of mis-sold car finance products, with a ruling expected by the Supreme Court in July. There is a ‘business-as-usual’ feel to this update; but, as has been said for some time, Lloyds is moving closer to the point of needing to set out its long-term plans and strategic direction for the future.”

Richard Hunter, head of markets at investment platform Interactive Investor, said some “emerging thorns in the side” had hampered progress at the bank, although the underlying financial strength of the group remained intact.

“Impairments are the most notable headwind for Lloyds at the moment,” he noted. “While no further provisions were taken this quarter for the remediation of potential motor finance commission arrangement fines, £1.2bn has already been set aside with the next judgement expected in July.

“Elsewhere, however, the world has moved on and the global economy is yet to display the full effects of the tariff threats emanating from the US on a regular basis.

“For all the progress, the impairment overhang, a potentially challenging UK economic backdrop and the higher valuation attached to the recent share price gain have all contributed to a lukewarm response to the numbers.”

Meanwhile, Lloyds-owned Halifax has announced a number of rate cuts as the mortgage war heats up. Of particular note is a 3.79 per cent fixed two-year product, up to 60 per cent loan to value and with a £1,999 product fee. This is for mortgages of £250,000 or more.

Stephen Perkins, managing director at Yellow Brick Mortgages, said: “This is a bold statement of intent from the UK’s largest mortgage lender. This 3.79 per cent headline rate is market-leading and hopefully will instigate another round of rate cuts from those high street lenders not wanting to be left behind.”

Shares in Lloyds were down about 2 per cent shortly before lunchtime on Thursday.

Lloyds shares leap despite profit drop and fresh £700m motor finance costs