Lloyds (LLOY) is a very different bank from the business that needed a government bailout a decade ago as Wednesday’s results show.

The bank’s underlying pre-tax profits grew by 6% quarter-on-quarter to £2bn in its first quarter to 31 March, a slight miss on analyst forecasts for £2.08bn. Compared to the prior year rather than quarter, this represents a 25% increase.

This market forecast miss is reflected in Lloyds’ share price move today, down 1.4% to 65.2p.

While the bank still has to set aside funds to deal with mis-selling payment protection insurance, £90m is not a great amount and the final deadline for claims is set for next year.

Lloyds had a fairly high impairment cost for the first quarter at £258m, more than double the prior year’s £127m although this is largely down to the bank’s exposure to the now defunct Carillion. Therefore a one-off spike and not an indication of falling credit quality.


Compared to the bank that needed propping up following the credit crisis, Lloyds is now a slimmed down efficient business and is continuing to streamline its offering. It has announced the closure of 49 branches and the cut of 305 jobs as it focuses on bringing costs down.

The bank has bolstered its common equity tier one (CET1) ratio from last year, from 13% to 14.4%. Not only does this show Lloyds' resilience to economic shocks, it makes the idea of a return into state hands very unlikely, even in the event of an economic shock. The government sold its last remaining stake in the bank last year.

Lloyds is an established dividend payer so its strong CETI position bolds well for further pay-outs. It impressed the market in February with the announcement of a £1bn share buy-back plan and Investec analyst Ian Gordon predicts further buy-backs of £1.5bn and £2bn for 2018 and 2019 respectively.

Lloyds has a return on tangible equity (ROTE) of 12.3%. To place this into context, no other FTSE 100 bank forecasting anything over 10% by 2019. Lloyds itself is targeting a ROTE of 14-15% by 2019.

Lloyds is not the cheapest bank out there, using Investec’s forecasts it has a 2018 price to book ration 1.2-times. However, it also has a prospective dividend yield of 5.2% before any expected additional payments are considered.

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Issue Date: 25 Apr 2018