Investors looking to hoover up the remaining 11% of the government’s stake in Lloyds Bank’s at a 5% discount next year probably won’t have liked this morning’s share price reaction to the latest trading update from the bailed out bank, as the shares declined sharply in the wake of this morning’s numbers, though they remain above the lows of the year. This does appear to be somewhat of an over-reaction despite some of the numbers coming in slightly below expectations. It appears that the decline in underlying profit to £1.97bn from £2.16bn a year ago, has prompted this morning’s sell off, due to a slightly tougher trading environment in the recent quarter, but apart from that and another £500m charge in respect of PPI provisions, putting the total sum at £14bn, the overall picture continues to look fairly positive. The bank posted a 28% increase in profits before tax for Q3 to £958m on the same period a year ago, while operating costs fell 2% to £1.91bn. The bank also reported that its balance sheet had strengthened further with a common tier one ratio of 13.7%. Provisions in respect of bad loans came in lower by 33% as a result of the continued improvement in the UK economy, while on the lending side, loans to small business increased by 5%, and mortgage lending rose by 1%, despite some softening in the UK economy over the third quarter. Ultimately the bank remains a play on the UK economy, and while a global slowdown will ultimately affect its profitability, the limited global footprint of the bank should insulate it to some extent. The bank still remains on course to make a pre-tax profit for the fiscal year of £8.2bn, well up from the £2bn in 2014, with the prospect that we could also see a sizeable increase in the dividend from the 1% seen in 2014. This is ultimately what investors need to focus on, as well as the prospects for the UK economy. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person
Lloyds shares slide despite increase in profits.
07:05, 28 October 2015 · By Michael Hewson