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Lloyds Earnings Miss Forecasts

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Lloyds Earnings Miss Forecasts

  • Bank takes a hit from break fees payment to Standard Life
  • Plans for any excess capital will be decided later this year

Lloyds Banking Group Plc, Britain’s biggest mortgage lender, blamed the cost of compensating mis-sold insurance customers and moving its wealth business for a quarterly profit that missed forecasts.

The bank posted a pretax profit of 1.6 billion pounds ($2.1 billion) for the first quarter. This is lower than a consensus of 1.88 billion pounds compiled by the bank, which said it was due to one-time items including a break fee for moving some wealth funds out of Standard Life Aberdeen after a British tribunal ruled against the bank in March.

Shares in the bank fell as much as 3.1 percent in early London trading.

Lloyds is looking to diversify its revenue streams, particularly in wealth and insurance, while its core loans and savings accounts tread water. Last year it awarded Schroders Plc and BlackRock Inc. a mandate to oversee about 109 billion pounds, aiming “to create a market-leading wealth management proposition.” However, the company on Wednesday flagged break fees to move the funds, contributing to a 339 million-pound charge.

“We are disappointed by the outcome but we accept it and we are moving on," Chief Financial Officer George Culmer said during a media call, refusing to give a specific number for the the break fee Lloyds will have to pay.

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The bank also has bills left to pay for its past misconduct. Lloyds posted a further 100 million-pound provision for customers who were mis-sold payment protection insurance. The scandal hit many U.K. banks, but Lloyds’ running total of 19.4 billion pounds by the end of 2018 makes it the biggest spender. Culmer said that the cost reflects a surge in calls, partly encouraged by claims management companies, as the compensation program draws to a close in August.

Chief Executive Officer Antonio Horta-Osorio has been cutting costs since taking the top job almost eight years ago, reducing the cost-to-income ratio to 44.7 percent in the latest quarter, improving from 49.3 percent at the end of last year. The London-based bank, which has almost all its assets in the U.K., is targeting costs of around 40 percent of its income at the end of 2020, which would make it one of the most efficient European lenders.

Culmer said the bank will decide later in the year whether to hand any extra money back to shareholders. Lloyds was this week given more breathing space on its capital requirements and has lowered its targets for its CET1 ratio, a measure of capital strength, to around 12.5 percent, potentially freeing up about 1 billion pounds in excess capital.

“While Brexit uncertainty persists and continued uncertainty could further impact the economy, given the current strong performance, we are reaffirming all of our financial targets,” Lloyds said in the earnings statement.

(Updates 4th paragraph with chief financial officer remarks.)