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Lloyds Banking Group PLC LLOY

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Morningstar’s Analysis

Currency in GBX
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Strong First Quarter for Lloyds As Loan-Loss Provisions Start To Reverse

Niklas Kammer, CFA Equity Analyst

Analyst Note

| Niklas Kammer, CFA |

We maintain our GBX 62 per-share fair value estimate for Lloyds after the group reported a good first-quarter 2021. Relative to the more comparable fourth quarter of last year, net income increased 2% to GBP 3.7 billion on flat net interest income but slightly higher other income. Crucially, the net interest margin was resilient despite the low interest-rate environment. Indeed, it increased 3 basis points compared with the last quarter of 2020 as growth in mortgage volumes at attractive margins more than offset the structural hedge headwind. The first quarter constitutes the third consecutive net interest margin improvement, albeit small, since the rate cut by the Bank of England affected second-quarter earnings last year. Operating costs came in at GBP 1.9 billion, in line with last year’s quarterly performance. Loan-loss reversals lead to an income statement credit of GBP 323 million, which lifted return on tangible equity for the quarter to 13.9%. We maintain our narrow moat and stable trend ratings.

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Company Profile

Business Description

Lloyds is a retail and commercial bank headquartered in the United Kingdom. The bank operates via three business segments: retail, commercial banking, and insurance and wealth. In retail, Lloyds offers primarily mortgages (66% of loan portfolio), credit cards, and current accounts to its customers. Its commercial banking operation provides lending, transaction banking, working capital management, and debt capital market services to large corporates and financial institutions in the U.K. Insurance and wealth rounds out the product lineup with life and property insurance as well as pension solutions and high-net-worth asset-management services.

25 Gresham Street
London, EC2V 7HN, United Kingdom
T +44 2073562104
Sector Financial Services
Industry Banks - Regional
Most Recent Earnings Mar 31, 2021
Fiscal Year End Dec 31, 2021
Stock Type
Employees 61,576