Lloyds Falls After Posting Decline in First-Quarter Revenueby
Lender cut operating costs 2% to offset revenue drop
Bank didn't set aside more money for loan insurance claims
Lloyds Banking Group Plc, Britain’s largest mortgage lender, said profit was little changed in the first quarter after cutting costs to offset a drop in revenue. The stock fell.
Pretax profit, excluding one-time items and its previously owned TSB banking unit, dropped to 2.05 billion pounds ($3 billion) from 2.06 billion pounds a year ago, the London-based bank said in a statement Thursday. While that beat the 2 billion-pound average estimate of four analysts surveyed by Bloomberg, revenue fell 1 percent to 4.4 billion pounds, missing some analysts’ estimates.
Chief Executive Officer Antonio Horta-Osorio is under pressure to intensify cost cutting to boost profit as the Bank of England keeps interest rates at a record low amid concerns over slowing economic growth. The government is looking to sell its remaining 9.2 percent stake in Lloyds after the bank paid a bumper dividend for 2015 and signaled the end of charges for wrongly sold payment protection insurance that have cost the lender more than 16 billion pounds.
“Revenue growth was maybe a little disappointing,” said Gary Greenwood, an analyst at Shore Capital in Liverpool, England with a buy rating on shares. “It was sort of flat and boring. To be honest, there’s nothing I can get too excited about one way or another.”
The stock fell 3 percent to 67.2 pence at 8:29 a.m. in London trading and has slipped about 8 percent so far this year. It remains below the 73.6 pence average price the U.K. paid in its 20.5 billion-pound bailout of the bank at the height of the financial crisis.
“We view these as mixed results,” Citigroup Inc. analysts led by Andrew Coombs wrote in a research note. “We believe regulatory and Brexit risks may hold back the stock in the medium-term.”
Net income, including tax and a charge linked to the bank repurchasing contingent-capital bonds, fell to 531 million pounds from 944 million pounds a year earlier. Net interest margin jumped to 2.74 percent, up 14 basis points from a year earlier.
“We have continued to make good progress,” Horta-Osorio, 52, said in the statement. The results “reflect our ability to actively respond to the challenging operating environment.”
Lloyds’s common equity Tier 1 capital ratio, a measure of financial strength, fell to 12.8 percent from 13 percent at the end of December, while the leverage ratio, or assets in relation to capital, dropped to 4.7 percent from 4.8 percent. The bank maintained it would generate about 2 percentage points of capital over the year.
The lender said it took a 115 million-pound charge for “retail conduct” matters without elaborating further, though didn’t make additional provisions for improperly sold loan insurance which have cost the bank more than 16 billion pounds in the past five years. It said PPI complaints were in line with its expectations and covered by a 2.1 billion-pound provision in the fourth quarter.
Lloyds cut operating costs by 2 percent in the quarter to 2 billion pounds, as it eliminated staff and moved to close branches. The lender may go beyond its three-year plan to cut 9,000 jobs by the end of next year and reduce annual costs by 1 billion pounds, people with knowledge of the matter have said. The bank could revise the goal as the Bank of England keeps its key interest rate lower for longer than anticipated, squeezing profitability from lending.
“We’re going to concentrate on finishing the program that we have to date and once we’re through that, we will review the situation,” Chief Financial Officer George Culmer said on a call with reporters.
Impairments fell 6 percent to 149 million pounds, helping to offset the decline in revenue.