Shares in high-street stalwart Lloyds Banking Group (LLOY) gained 2.5% to 28.3p, continuing their recovery from five-year lows and eradicating some of their 55% year-to-date loss, after reporting a smaller than expected fall in third quarter net interest income and better than estimated profits in the third quarter.
PLENTY OF POSITIVE SURPRISES
For the quarter ended in September, group net interest income was £2.6 billion, a decline of 16% against consensus expectation of a fall of 18%, ‘the first positive surprise in recent memory’ in terms of top line performance according to Jefferies analyst Joseph Dickerson.
Moreover, the net interest margin - or the difference between the interest rate the bank charges on loans and the rate it pays on deposits - actually widened for the first time in many quarters, and is expected to stay at the current level through the fourth quarter.
Thanks to a recovery in mortgage and business lending, pre-tax profits topped £1 billion in the quarter, well ahead of market forecasts of £588 million.
Average interest-bearing assets rose as the bank stepped up its mortgage lending by £3.5bn from June, capturing a 22% market share of approvals and maintaining a strong pipeline of applications.
There was more positive news on bad loan provisions, which were just £300 million in the third quarter ‘in line with pre-crisis levels, reflecting no significant change in economic outlook.’
Provisions for the fourth quarter are likely to be in the region of £400 million, taking the total for the year to £4.5 billion which is at the bottom of the company’s guidance range of £4.5 billion to £5.5 billion.
KEEPING MUM ON DIVIDENDS
The bank’s Core Equity Tier One capital ratio hit 15.2%, comfortably above the bank’s ongoing target of 12.5% plus a management buffer of around 1%, and the regulatory minimum of 11%.
Despite this clear excess of capital, which gives it ample headroom to resume dividends, the bank made no explicit reference to shareholder distributions, simply saying it was ‘well positioned for long-term superior and sustainable returns supported by its leading efficiency position and prudent balance sheet.’
STANDARD CHARTERED
In contrast, global banking group Standard Chartered (STAN), which also reported third quarter earnings today, sank 5.3% to 354p despite holding out the promise it could resume shareholder returns early next year thanks to its strong capital position.
Investors seemed more preoccupied with the 30% fall in operating profit and the continued erosion of its net interest margin, which the bank warned would continue to be squeezed through the next two quarters.
