Lloyds Banking Group PLC is quickly gaining earnings momentum, but is still looking over its shoulder to clean up its troubled past.
Britain’s largest mortgage lender posted a 23 percent jump in pretax profit for the second quarter of this year, beating analysts’ estimates, and also upgraded its financial guidance for the full year.
It is also taking a ￡460 million charge (US$602 million) to compensate customers for improperly sold loan insurance, Lloyds said in its earnings statement yesterday.
“The only notable fly in the ointment” is a further payment protection insurance [PPI] provision taken during the second quarter, Shore Capital analyst Gary Greenwood said in a note to investors. “Overall, we expect this statement to be taken positively by the market.”
After restoring the bank to full private ownership, chief executive officer Antonio Horta-Osorio is investing ￡3 billion to boost technology and income from insurance and retirement products, while striving to keep a lid on expenses.
Lloyds is aiming for a cost-to-income ratio in the low 40s, which would make it one of the most efficient European banks.
Lloyds said pretax profit climbed to ￡1.52 billion in the second quarter from ￡1.24 billion a year earlier.
Net interest income climbed just under 6 percent to ￡3.17 billion for the quarter.
The latest PPI top-up in the second quarter raises the total set aside for the scandal by the London-based bank to more than ￡19 billion.
Analysts at Morgan Stanley expected a charge of ￡410 million for the second quarter, according to a note.
The bank, which had about 70,000 staff as of the end of June, has shrunk from about 99,000 employees in 2011, the year Horta-Osorio became chief executive officer.
The former Banco Santander SA executive has reduced costs, closed branches and eliminated jobs as the company invests in digital technology.
The lender has resumed paying dividends and announced a ￡1 billion share buyback in February.
Lenders in the UK have already set aside almost ￡40 billion to compensate customers who were improperly sold PPI, with Lloyds paying out the most so far.
A ruling by a UK court and a new proposal from regulators to broaden the scope of claims raise the prospect of further pain for the banks.
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