With Lloyds Banking Group share price currently trading at its highest levels this year, today’s full year numbers are a decent final legacy of outgoing CEO Antonio Horta-Osorio’s tenure in his ten years as head of the bank.
When he took over in January 2011, three years after the bank received a £20.5bn bailout from the UK government the bank was in a parlous state, despite a share price that was higher back then, than it is now.
Over the last ten years the bank has returned to profitability, as well as private ownership and while it hasn’t been an easy ride, by 2017 the bank managed to post a statutory profit of £5.3bn, as well as paying out the largest dividend ever to its shareholders of £2.3bn.
The last twelve months have been a big test for the bank, let alone the UK economy, however at no time were there any questions as to whether the bank would be able to deal with the challenges posed by the coronavirus pandemic.
When Lloyds reported back in Q3 the bank was able to show a return to profitability after posting a H1 loss of £602m, with £676m of that coming in Q2, after it increased its loan loss provisions by £300m to £4.1bn for the first nine months of the year.
This was lower than expected, and more encouragingly the bank was able to report a statutory Q3 pre-tax profit of just over £1bn, while also revising its estimate for full year loan losses to the lower end of a £4.5bn to £5.5bn range.
There was a concern that the recent lockdown and various restrictions that have been in place since November might impact the loan loss provision for Q4, especially given the bank revised its loan loss provision lower in Q3. These concerns proved to be wide of the mark with Q4 provisions increased by £128m, taking the total set aside for 2020 to £4.2bn.
Today’s full year numbers have shown that statutory profits for Q4 came in at £792m, well above expectations of £471m, and taking statutory full year profits after tax to £1.39bn, a decline of 54% from last year.
Net interest margin for Q4 did improve slightly from Q3’s 2.4% rising to 2.46%, but still well below last year’s levels of 2.88%. It would appear that the recent steepening in UK yields has offset some of the weakness seen in Q3, however over the year they have still come down to an annualised 2.52%.
More importantly from a shareholder point of view the bank announced a dividend of 0.57p a share.
The outlook continues to look highly uncertain given that a lot more of its customers are likely to find themselves in financial difficulty in the months ahead, however the bank said it expects to see a stabilisation in 2021, and that net interest margins should remain above 240 basis points over the next 12 months.
In its Q3 numbers the bank outlined how many payment holidays were granted as a result of the first lockdown, with loans totalling £68.3bn undergoing some form of forbearance over the last 12 months. Of that number only £1.7bn still has the first payment holiday in force.
Of the remaining payment holidays that were granted 89% of those have recommenced payments, with £5.8bn outstanding as at 16 February 2021. This was lower than the £6.4bn that was outstanding at the end of last year.
On mortgages the number came in at 489k, equating to customer balances of £61.9bn, up from 477k in Q3, and 338k on credit card balances, accounting for £1.7bn.
All in all today’s numbers from Lloyds appear to mark a nice postscript for outgoing CEO Antonio Horta Osorio, with the dividend resumed, and barring any mishaps a bank that looks well set to take advantage of a summer recovery in the UK economy.
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