Annual profits

Lloyds Bank’s annual profits plunge 72% to £ 1.2bn

Lloyds Bank’s annual profits plunge 72% to £ 1.2bn amid declining household spending during the Covid pandemic

  • UK’s largest national lender reveals extent of financial devastation from Covid-19
  • Statutory pre-tax profits fall to £ 1.2bn in 2020, from £ 4.4bn in 2019
  • However, the latest figure was better than the £ 905million analysts expected
  • Lockdowns reduced household spending and increased bad debt provisions

Lloyds Banking Group has revealed that its profits fell 72% to £ 1.2 billion last year as it battles the economic fallout from the coronavirus pandemic.

Britain’s largest national lender has laid bare the extent of financial devastation caused by Covid-19 as its statutory profit before tax fell from £ 4.4 billion in 2019.

However, the 2020 figure was better than the £ 905million analysts expected, according to a consensus compiled by the London-based company.

It comes after three closures in England during the pandemic that began last March, slashed household spending and increased provisions for bad debts.

Lloyds recorded depreciation charges – money it sets aside for loans that could go bad – of £ 4.2bn last year, up from £ 1.3bn a year later early.

Lloyds Banking Group said its pre-tax profit fell 72% to £ 1.2 billion in 2020 (file image)

It was lower than the £ 4.7bn expected by analysts, after the bank recorded write-downs of just £ 128m in the fourth quarter.

This has been compared to the £ 586million that was expected. Net profit fell 16% to £ 14.4 billion in the year.

Meanwhile, outgoing CEO António Horta-Osório has set new goals to expand the bank’s insurance and wealth management business and further reduce costs.

Among the targets set, Lloyds said it would increase clients’ insurance funds and fortune by £ 25 billion by 2023 and reduce office space by 20% in three years.

Overall costs would drop to less than £ 7.5bn this year, the lender said.

Lloyds has set aside £ 4.2bn to cover loans that are expected to fall, below a previously given range of £ 4.5bn to 5.5bn.

Mr Horta-Osório is leaving Lloyds after a decade at the helm of the bank to run for president of Credit Suisse in April, with HSBC director Charlie Nunn scheduled to replace him on August 16.

Outgoing Managing Director António Horta-Osório

HSBC executive Charlie Nunn to take over

Outgoing chief executive António Horta-Osório (left) is leaving Lloyds after a decade as head of the bank, with HSBC chief Charlie Nunn (right) scheduled to replace him on August 16.

Like its competitors HSBC, NatWest and Barclays in recent days, Lloyds’ profits have been shaken by lower customer spending and very low central bank interest rates.

Women on FTSE boards soar 50%, report says

The number of women on FTSE boards has increased by 50% in five years, but “significant progress” is needed to increase the number of women at the helm of Britain’s biggest companies, according to a report.

The Hampton-Alexander journal final report found that the number of women on FTSE boards rose to 1,026, from 682 in 2015.

This means that 34.3 percent of FTSE 350 board positions are now held by women, up from 21.9 percent in October 2015, meeting the exam target for at least a third.

There are also no all-male boards of directors, up from 15 in 2015, another important step for the review, launched in 2016 with the aim of increasing the representation of women at the top of the company.

But the journal’s chairman, Sir Philip Hampton, called for further progress to increase the number of women in leadership positions, with men still firmly dominating the ranks.

Lloyds was forced, like other banks, to suspend payments last year at the request of the Bank of England to consolidate its finances during the pandemic.

The bank’s core capital ratio – a key measure of financial resilience – rose to 16.2 percent, from 15.2 percent in September.

Mr Horta-Osorio said: “Looking ahead, significant uncertainties remain, especially regarding the coronavirus pandemic and the speed and effectiveness of the vaccination program in the UK and globally.

“I remain confident that the group’s clear purpose, unique business model, strong competitive advantages and the evolution of our customer-centric strategy that we have announced will ensure that the group will be able to help Great Britain to recover and, in so doing, help in the transition to a sustainable economy.

The board of directors also announced that it would bring back dividends, which had been suspended at the start of the Covid-19 crisis, fixing an ordinary payment of 0.57 pence per share.

The maximum allowed by the guidelines of the Prudential Regulation Authority of the Bank of England – and is above a forecast of 0.53p.

Dan Lane, analyst at the Freetrade investment platform, said: “For context, that figure was 3.2p in 2018. Outgoing Horta-Osorio said that was the maximum the bank was allowed to shell out at this stage of the recovery.

“With £ 4.2bn of depreciation charges set aside to deal with loans that could turn sour, this may be the smart thing to do right now.

“A huge drop in pre-tax profits could also justify the temporary return of payments in the eyes of shareholders.”

Analysis: Jam is back on the plate for Lloyds, the bread and butter bank

By Susannah Street

Lloyds may still be a bread-and-butter bank with a strong retail focus, but a layer of jam is back on the plate, with fortunes picking up around the second half of the year.

Pre-tax profit reached £ 1.2bn for the year, which although a 70% decline from last year, but still marks a significant turnaround after a very unpleasant first half.

The mini real estate boom, spurred by the stamp duty relief, led to a £ 10.2 billion growth in its mortgage portfolio in the second half of the year.

Government-backed pandemic business loans, totaling £ 11.1 billion for the year, also helped offset loan repayments elsewhere.

As lockdowns curtailed spending, the savings windfall filled deposit accounts with a total of £ 39bn during the year.

The sweetener for shareholders comes in the form of the return of the dividend, set at 0.57p per share, the maximum authorized by the regulator, and a plan to return to a progressive dividend policy.

But there are still reasons to be cautious, given that the big dollop of home loans taken out could turn out to be a bit of a flash in the pan.

There are signs that home sales are slowing with the end of stamp duty relief. Unemployment is also expected to continue to rise until at least mid-year, which could see more loans deteriorate.

Last year, depreciation charges totaled £ 4.2bn and although the money set aside declined significantly at the end of the year, this current long foreclosure is likely to have resulted in deterioration finances for some.

Since the start of 2021, more than £ 1.3bn in emergency pandemic loans have been taken out, an indication of the difficulties many businesses still face.

The bitter taste of ultra-low interest rates for its core business lingers with little end in sight. Net income fell to £ 14bn from £ 17bn last year, in part because the money the bank makes on loans has been slashed.

Faced with lower margins, higher volumes seem to be the answer for Lloyds and their investment in digital transformation should help them keep the costs of servicing those extra loans low.

He also seems to want to put a lot more on his plate than bread and butter retail, with an update to his strategy indicating a strengthened corporate and institutional offering, an area he clearly sees as growth potential.

Susannah Streeter is Senior Investment and Markets Analyst at Hargreaves Lansdown


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