Lloyds May Post a Loss as Funding Costs Rise, Loan Provisions
Lloyds May Post a Loss as Funding Costs Rise
Simon Dawson/Bloomberg
The 41 percent state-owned lender cut in June its net interest margin forecast for 2014 to 2.3 percent from 2.5 percent and said it would achieve a net interest margin of “just above” two percent this year.
The 41 percent state-owned lender cut in June its net interest margin forecast for 2014 to 2.3 percent from 2.5 percent and said it would achieve a net interest margin of “just above” two percent this year. Photographer: Simon Dawson/Bloomberg
Lloyds Banking Group Plc (LLOY), Britain’s biggest mortgage lender, may report a first-half loss as rising funding costs depress margins and it set aside 3.2 billion pounds ($5.2 billion) for mis-selling loan insurance.
Lloyds may post a net loss of 2.1 billion pounds for the six months to June 30, compared with a profit of 596 million pounds in the year-earlier period, according to the median estimate of seven analysts surveyed by Bloomberg. The net interest margin, the difference between what a bank earns on loans and its funding cost, may shrink to 2.04 percent from 2.1 percent in 2010, Credit Suisse Group AG analysts including Carla Antunes-Silva wrote in a note to investors last week.
“Net interest margin will be a key area of focus,” Gary Greenwood, a banking analyst at Shore Capital in Liverpool, wrote in an Aug. 1 report. “We expect margin progression to stall in 2011. Impairments will also be in focus.”
Lloyds’s funding costs are rising as Chief Executive Officer Antonio Horta-Osorio tries to wean the bank off state support and onto costlier wholesale funding. The 41 percent state-owned lender cut in June its net interest margin forecast for 2014 to 2.3 percent from 2.5 percent and said it would achieve a net interest margin of “just above” two percent this year.
Job Cuts
Horta-Osorio said in June the bank would cut 15,000 jobs and reduce costs by an additional 1.5 billion pounds as it re- focuses on its U.K. business. Lloyds had already pledged 2 billion pounds of annual savings following its purchase of HBOS Plc three years ago, which has so far resulted in about 27,000 job losses. The acquisition led the bank to accept a bailout of more than 20 billion pounds to increase its capital.
Lloyds posted a full-year net loss of 320 million pounds in 2010, compared with a 2.83 billion-pound profit in 2009.
Lloyds has fallen 39 percent to 39.9 pence in London trading this year, for a market value of 27.5 billion pounds. The shares are the worst-performing British bank stock this year.
The table below shows analysts’ median estimates for the first half of 2011 in millions of pounds for Lloyds.
1H 2011 Estimate 1H 2010 Actual Analysts
Net Income -2,100 596 7
Pretax profit 700 1,600 7
To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net
To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net
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