Lloyds cautions over Brexit after solid Q1 performance

Lloyds Banking Group owns Bank of Scotland. Picture: Louise KerrLloyds Banking Group owns Bank of Scotland. Picture: Louise Kerr
Lloyds Banking Group owns Bank of Scotland. Picture: Louise Kerr
Bank of Scotland owner Lloyds Banking Group has revealed charges held back growth in first-quarter bottom-line profits as it warned ongoing Brexit uncertainty could take a further toll on the UK economy.

The high street banking giant reported flat statutory pre-tax profits of £1.6 billion as it revealed a further £100 million charge for the payment protection insurance (PPI) scandal after a surge in complaints ahead of the deadline.

It also booked charges of £126m for restructuring and another £339m, including an estimated charge for the exit fee for ending its mammoth contract with asset manager Standard Life Aberdeen (SLA).

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On an underlying basis, it reported a better-than-expected 8 per cent rise in underlying profits to £2.2bn for the three months to 31 March.

Despite fears over Brexit uncertainty and its impact on the economy, Lloyds, which also owns Scottish Widows, said it remained on track for the full year.

Antonio Horta-Osorio, group chief executive, said: “While Brexit uncertainty persists, and continued uncertainty could further impact the economy, I remain confident that our unique business model, and in particular our market-leading efficiency and targeted investment, will continue to deliver superior performance and returns for our customers and shareholders.”

His comments follow similar cautionary remarks last week from rival Royal Bank of Scotland over the potential negative impact of Brexit.

Lloyds said it now does not expect another interest rate rise until next year at the earliest as Brexit worries hold back business spending and the deal outcome remains unclear given the recent six-month delay to the EU departure.

But finance chief George Culmer insisted its figures showed consumer demand remaining robust.

The bank declined to break out the charge set aside for the SLA contract break fee. It comes after a tribunal recently ruled Lloyds did not have the right to end the hefty £100bn contract with SLA.

Lloyds also remained tight-lipped on whether it plans to launch further share buybacks after regulators on Wednesday allowed the lender to free up around £1bn in capital.

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The Bank of England’s Prudential Regulation Authority (PRA) set Lloyds a lower level of the so-called “systemic risk buffer” – a requirement designed to boost the capital strength of retail banks – a move seen as potentially paving the way for further share buybacks.

John Moore, senior investment manager at Brewin Dolphin, said: “Today’s results from Lloyds build on the good news about the bank’s capital guidance and reaffirm it as one of the financially strongest banks, paving the way for a potential share buyback or higher dividends.

“However, whether that happens will depend on the economic cycle and it’s worth noting that, in a departure from the bank’s last update, we have a statement on ‘Brexit uncertainty’.

“In any case, Lloyds’ net interest margin is stronger than many of its peers and its cost-income ratio is tidy. The beauty of Lloyds is in its simplicity, redoubled efforts on an efficient core business, and the strength of its balance sheet; but, Brexit clouds continue to hang over the entire banking sector, which may act as a drag on its share price.”