Lloyds Bank results overshadowed by potential mis-selling claims / Image source: Adobe
  • 2023 results mostly positive
  • New £2 billion share buyback
  • Provisions for claims could rise

The UK’s largest lender Lloyds (LLOY) delivered a mixed full-year update, with strong progress in earnings and the promise of a new share buyback overshadowed by ‘remediation’ costs.

The shares initially sank towards the bottom of the FTSE 100 leader board with a loss of 0.8p or 1.9% to 42.5p but recovered their losses in mid-morning trading.


During 2023 the bank set out several strategic objectives aimed at building earnings while reducing costs, and the full-year results show it making solid progress towards those goals helped by continued investment in the business.

Underlying net interest income rose 5% to £13.8 billion, despite average interest-earning bank assets remaining stable at £453 billion, thanks to an increase in the net interest margin to 3.11% against 2.94% in 2022.

Meanwhile, non-interest income rose 10% to £5.1 billion ‘reflecting the broad-based recovery of customer activity and ongoing investment in the business’ according to the bank.

Operating costs rose 5% to £9.1 billion, and the underlying impairment charge for bad loans was just £308 million helped by a significant write-back in the fourth quarter.

The bank’s ROTE (return on tangible equity) was a healthy 15.8%, above its previous guidance of 14% or above, while the guidance for 2024 of around 13% was well ahead market forecasts, which together with the news of a further £2 billion buyback should have seen the shares post solid gains.

However, looming over today’s release was the issue of motor loan commission agreements with Black Horse being the country’s largest provider of credit for car purchases.

While the FCA probe is ongoing, and no decision is expected until much later this year, Lloyds got the ball rolling with a £450 million provision for potential mis-selling, although it was unclear from the statement whether it expected to have to increase this amount.

A recent Financial Times article suggested UK banks could be liable for up to £16 billion in claims, with Lloyds potentially facing up to £2.5 billion in compensation costs despite the car finance business representing less than 5% of its total loan book.


Will Howlett, financials analyst at Quilter Cheviot described Lloyds’ results as ‘mixed, with some positive signs of capital return and resilience but also some challenges from lower net interest income, higher operating costs and regulatory uncertainty’.

Howlett described the shares’ current valuation of 0.8 times tangible book value and six times earnings as ‘fair given its market position and outlook, but not compelling compared to other opportunities in the sector’.

Joseph Dickerson, banks expert at Jefferies, labelled the fourth quarter results ‘not great’ with pre-provision profits below consensus and a much higher than expected depreciation charge for operating leases.

However, the 2024 guidance looks ‘credible’ said Dickerson while shareholder returns are rising thanks to the additional buyback and a lower capital commitment which frees up £1.1 billion of capital could mean more distributions to come.


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Issue Date: 22 Feb 2024