Company Reports

Lloyds is a pure UK banking play, with 95% of its assets based domestically. Since its massive restructuring, which started in 2011, the bank has emerged as a low-risk domestic retail and commercial bank. It has shed about GBP 190 billion in runoff assets and GBP 200 billion in risk-weighted assets and has significantly reduced its dependence on wholesale funding. Today, Lloyds operates one of the strongest retail franchises in the United Kingdom.

Lloyds reported first-quarter underlying profits of GBP 1.757 billion, slightly ahead of the GBP 1.746 billion consensus collected by Lloyds prior to the release. Net interest income declined 10% as the bank’s net interest margin continued to drift to 295 basis points from 322 basis points a year ago. Positively, the retail deposit outflow has stopped as current and savings account balances increased marginally. As such, headwinds on NIMs are waning, supporting Lloyds’ 2024 guidance of NIM above 290 basis points. Operating costs increased 11% due to higher severance charges as well as a higher levy by the Bank of England. Asset quality was within expectations at 23 basis points excluding reversals. Lloyds also called out improving default rates, which is a positive sign for the bank’s credit quality outlook. We maintain our GBX 77 per-share fair value estimate and narrow moat rating.

Lloyds reported fourth-quarter 2023 results in line with expectations. Net income decreased to GBP 4.232 billion on an underlying basis from GBP 4.514 billion last quarter, while operating expenses increased to GBP 2.486 billion from GBP 2.241 billion. Net interest income declined 4% on a lower banking net interest margin of 298 basis points (308 basis points last quarter), driven by deposit and mortgage margin pressure. Positively, the shift in deposits is showing signs of slowing, similar to what U.K. peers have posted this earnings season. A GBP 450 million remediation charge Lloyds took after a Financial Conduct Authority review into potential motor financing mis-selling was unexpected. The bank highlighted that it still sees material uncertainty around the actual remediation necessary in this matter, if any. We maintain our fair value estimate of GBX 77 per share and narrow moat rating.

Lloyds is a pure U.K. banking play, with 95% of its assets based domestically. Since its massive restructuring, which started in 2011, the bank has emerged as a low-risk domestic retail and commercial bank. It has shed about GBP 190 billion in runoff assets and GBP 200 billion in risk-weighted assets and has significantly reduced its dependence on wholesale funding. Today, Lloyds operates one of the strongest retail franchises in the United Kingdom.

Narrow-moat Lloyds reported third-quarter underlying profits before tax of GBP 2.022 billion, up 22% from the same period a year ago. Underlying profits before impairments and tax of GBP 2.209 billion versus GBP 2.328 million a year ago paint a clearer picture of Lloyds' performance as the banking group booked material macroeconomic scenario adjustment-driven impairments last year. Income development was up 1%, with net interest income growing 1% and underlying other income growing 11%. However, this was more than offset by 7% higher operating expenses. Asset quality stood out positively at just 17 basis points in the quarter versus 25 basis points year to date. Lloyds now expects loan impairments below 30 basis points for the full year. We maintain our GBX 77 per share fair value estimate.

Narrow-moat Lloyds reported second-quarter underlying operating profit before tax of GBP 1.82 billion, down from GBP 1.91 billion a year ago. The performance was nevertheless decent as net interest income and other income more than offset higher operating expenses due to investments and inflation. We maintain our GBX 77 per-share fair value estimate and narrow economic moat rating.

Narrow-moat Lloyds reported first-quarter underlying profits before impairment of GBP 2.463 billion, up 13% on a sequential basis. Returns on tangible equity of 19.1% stood out positively on an otherwise uneventful quarter. We maintain our GBX 77 per share fair value estimate.

Stress has returned to the European banking system less than a week after a solution for Credit Suisse had been announced. Shares in European banks have traded down through March 24 around midsingle digits, with Deutsche Bank taking the brunt of it, down 15% at its lowest point intraday. We maintain our fair value estimates and moat ratings across our European banking coverage. Allianz remains our Best Idea. Admiral is one of our top picks

With Credit Suisse shoring up liquidity, concerns around a banking crisis spreading in Europe have been firmly planted. While we expect that the next days and weeks will remain volatile, we do not currently see a liquidity crisis spreading through the European banking system. The issues at Credit Suisse are idiosyncratic in nature and we believe containable for now even in a worst-case scenario. With capital and liquidity levels high across the board, asset quality still good, and regulators much better equipped than 15 years ago to quell any sparks, we believe European banks are solid. The major caveat being that developments are currently happening at a rapid pace and views we form today may be stale tomorrow. We believe investors are best placed in European banks with a greater retail focus and a sound profitability outlook. We would highlight BBVA, Handelsbanken, ING, and Lloyds.

Narrow-moat Lloyds reported fourth-quarter underlying profits of GBP 1,973 million ahead of consensus expectations of GBP 1,847 million. Despite these good results, focus revolved around lower net interest margin guidance for 2023. We maintain our fair value estimate of GBX 77 per share.

Narrow-moat Lloyds reported third-quarter underlying profits of GBP 1,729 million, down 17% compared with the same period a year ago. The decline was driven entirely by higher loan-loss provisions of GBP 668 million versus a reversal booked last year of GBP 119 million. Excluding these provisions, performance was good overall, with income generation up 13% outpacing operating expense growth of 9%. Despite growing uncertainty around the U.K economy, tailwinds in the form of higher interest rates are outweighing headwinds for Lloyds. This is in line with our thesis for Lloyds, which we expect to disproportionately benefit from the higher rate environment compared with the strain expected from a weakening economy. We maintain our fair value estimate of GBX 77 per share.

Lloyds is a pure U.K. banking play, with 95% of its assets based domestically. Since its massive restructuring, which started in 2011, the bank has emerged as a low-risk domestic retail and commercial bank. It has shed about GBP 190 billion in runoff assets and GBP 200 billion in risk-weighted assets and has significantly reduced its dependence on wholesale funding. Today, Lloyds operates one of the strongest retail franchises in the United Kingdom.

Narrow-moat Lloyds reported first-half underlying profit of GBP 3,746 million, versus a consensus estimate of GBP 3,401 million collected by the bank prior to the release. Income generation was strong, up 12% versus the same period a year ago. Higher base rates set by the Bank of England as well as the upswing at the long end of the yield curve have widened net interest margins at Lloyds significantly, forming the strongest tailwind since the beginning of the year. Gaining confidence from these results as well as an outlook of further rate increases over coming quarters, Lloyds again lifted its NIM guidance to above 280 basis points from above 270 basis points in the first quarter. We had anticipated a more gradual benefit at the beginning of the rate-hike cycle, but have now adjusted our NIM assumptions upward. As a result of these changes, as well as time value of money since our last model was updated, we raise our fair value estimate to GBX 77 per share from GBX 68 previously. We believe Lloyds’ shares are attractive at current levels.

Lloyds is a pure U.K. banking play, with 95% of its assets based domestically. Since its massive restructuring, which started in 2011, the bank has emerged as a low-risk domestic retail and commercial bank. It has shed about GBP 190 billion in runoff assets and GBP 200 billion in risk-weighted assets and has significantly reduced its dependence on wholesale funding. Today, Lloyds operates one of the strongest retail franchises in the United Kingdom.

Narrow-moat Lloyds reported a good first quarter with underlying profits before impairment of GBP 1,962 million, 14% ahead of the consensus estimate collected by the group itself prior to its earnings release. Net income generation was strong in the quarter with net interest income as well as other income up 10% and 11% respectively. We anticipated that Lloyds should fare well in a higher interest-rate environment, but incorrectly expected benefits to materialize at a slower pace. The banking net interest margin, or NIM, increased to 268 basis points in the quarter from 254 basis points at the end of last year. This was ahead of the 262-basis-point consensus estimate, but also beat Lloyds’ previous full-year guidance of above 260 basis points. Lloyds now expects its NIM for the full year to come in above 270 basis points. The flip side of higher interest rates and margins is a normalization of loan losses from reversals over the past quarters and also heightened uncertainty around asset quality as rates move up. That said, we believe Lloyds will be a net beneficiary of the rate hike cycle. We maintain our GBX 68.00 per-share fair value estimate.

The direct exposure of European banks to Russian and Ukrainian clients is insignificant. According to the Bank for International Settlements, claims on Russian counterparties from the major developed European countries' banks amount to 0.7% of the European banks' total claims reported to the BIS.

Narrow-moat Lloyds reported fourth-quarter underlying profits before impairments of GBP 1,318 million versus GBP 1,440 million a year ago. The performance was good, however. Cleaned for remediation charges, which are lumpy from quarter to quarter and were high in the last quarter of 2021 (GBP 775 million), profits before impairment increased 34%. Income generation was good with net interest income growing 8% to GBP 2,893 million. Average interest earning asset growth of 3% and the net interest margin expanding to 257 basis points from 246 basis points a year ago both positively affected this good performance. Operating expenses were flat, if we exclude the higher remediation charge related to HBOS. We maintain our GBX 68 per share fair value estimate.

Narrow-moat Lloyds passed the Bank of England’s stress test. At its lowest point, Lloyds’ common equity Tier 1 ratio dropped to 7.8% from a starting point of 15% at the end of 2020, on a fully loaded basis. This was just above the minimum of 7.7% regulators believe Lloyds should hold in capital reserves. The stress test aims for a plausible and severe macroeconomic scenario, which is significantly more punitive than what the U.K. economy experienced during 2020. As such, we don’t view the tight margin to Lloyds’ minimum requirement at the low point as worrisome. The bank appears adequately capitalized, will retain functional without capital infusions in such a severe macroeconomic scenario, and does not rely on transitional accounting arrangements to smooth capital drawdowns throughout the stress. We maintain our GBX 68 per share fair value estimate.

Narrow-moat Lloyds reported third-quarter statutory profit before tax of GBP 2.03 billion, comfortably beating consensus estimates collected by Lloyds of GBP 1.35 billion. Overall, the performance was good. Compared with the second quarter this year, net interest income increased 4% to GBP 2.85 billion. The net interest margin for the banking business increased to 255 basis points from 251 basis points last quarter. The structural hedge contributed positively (1 basis point) to the margin and given the current yield curve, is expected to continue to do so. As a result, Lloyds now guides for a net interest margin modestly above 250 basis points for the full year, having logged 252 basis points year to date. Operating costs were flat while loan losses remain benign, outperforming our expectations. Lloyds posted the third consecutive quarter of net loan-loss reversals. This allowed Lloyds to lower its guidance from below 10 basis points in loan losses to a net reversal for the full year. We revised our model based on third-quarter results, slightly updated guidance, as well as the improving interest rate outlook in the U.K. in the near term. This lifts our fair value estimate to GBX 68 per share from GBX 62 previously. Shares are undervalued.

Lloyds is a pure U.K. banking play, with 95% of its assets based domestically. Since its massive restructuring, which started in 2011, the bank has emerged as a low-risk domestic retail and commercial bank. It has shed about GBP 190 billion in runoff assets and GBP 200 billion in risk-weighted assets and has significantly reduced its dependence on wholesale funding. Today, Lloyds operates one of the strongest retail franchises in the United Kingdom.