Lloyds Banking Group Plc, Britain’s largest mortgage lender, said profit was little changed in the first quarter after cutting costs to offset a drop in revenue. The stock fell.
Pretax profit, excluding one-time items and its previously owned TSB banking unit, dropped to £2.05 billion ($3 billion) from £2.06 billion a year ago, the London-based bank said in a statement Thursday. While that beat the £2 billion average estimate of four analysts surveyed by Bloomberg, revenue fell 1% to £4.4 billion, missing some analysts’ estimates.
Chief Executive Officer Antonio Horta-Osorio is under pressure to intensify cost cutting to boost profit as the Bank of England keeps interest rates at a record low amid concerns over slowing economic growth. The government is looking to sell its remaining 9.2% stake in Lloyds after the bank paid a bumper dividend for 2015 and signaled the end of charges for wrongly sold payment protection insurance that have cost the lender more than £16 billion.
Mixed Results
The stock fell 3% to 67.2 pence in London trading and has slipped about 8% so far this year. It remains below the 73.6 pence average price the UK paid in its £20.5 billion bailout of the bank at the height of the financial crisis.
“We view these as mixed results,” Citigroup Inc. analysts led by Andrew Coombs wrote in a research note. “We believe regulatory and Brexit risks may hold back the stock in the medium-term.”
Net income, including tax and a charge linked to the bank repurchasing contingent-capital bonds, fell to £531 million from £944 million a year earlier. Net interest margin jumped to 2.74%, up 14 basis points from a year earlier.
Lloyds’s common equity Tier 1 capital ratio, a measure of financial strength, fell to 12.8% from 13% at the end of December, while the leverage ratio, or assets in relation to capital, dropped to 4.7% from 4.8%. The bank maintained it would generate about 2 percentage points of capital over the year.
The lender said it took a £115 million charge for “retail conduct” matters without elaborating further, though didn’t make additional provisions for improperly sold loan insurance which have cost the bank more than £16 billion in the past five years. It said payment protection insurance complaints were in line with its expectations and covered by a £2.1 billion provision in the fourth quarter.
Lloyds cut operating costs by 2% in the quarter to £2 billion, as it eliminated staff and moved to close branches. The lender may go beyond its three-year plan to cut 9,000 jobs by the end of next year and reduce annual costs by £1 billion, people with knowledge of the matter have said. The bank could revise the goal as the Bank of England keeps its key interest rate lower for longer than anticipated, squeezing profitability from lending.
Impairments fell 6% to £149 million, helping to offset the decline in revenue.
