The Lloyds Bank share price has stalled this year, after performing so well last year. This isn’t surprising given that the stock has more than doubled from the eight-year low it hit in September 2020, although it remains below its pre-pandemic peaks.
UK banks emerged from the pandemic in better shape than expected, partly due to government interventions, such as the furlough programme, which cushioned UK consumers from the worst of the economic hit from coronavirus. At the start of last year Lloyds was still speaking cautiously about an uncertain outlook, warning that many of its customers might soon find themselves in financial difficulty because of the latest lockdown. But the bank was confident enough to restore its dividend, which proved to be a good move as loan demand remained strong in 2021, while the rebounding UK economy allowed the bank to release loan-loss provisions, boosting profits.
Profits miss expectations
Today’s Q4 numbers saw pre-tax profits come in slightly below expectations at £968m, bringing full-year profits to £6.9bn, below expectations of £7.2bn. The miss on profits was partly due to a surprise increase in operating costs, which grew to more than £2bn in Q4, up from £1.87bn in Q3..
These latest results follow nine months of strong performance. In July, Lloyds reported statutory pre-tax profits of £2bn for Q2, lifting half-year profits above expectations to £3.9bn. The bank also announced a dividend of 0.67p a share, and confirmed that it had acquired savings and pensions firm Embark Group for £390m.
In Q3, pre-tax profits again came in at £2bn, double the amount from the year-ago period, bringing year-to-date profits before tax to around £5.9bn. Contributing to those Q3 profits was the release of a further £84m of impairments set aside to cover bad debt at the height of the pandemic, taking total impairments added back on to the balance sheet in the first nine months of the year to £740m.
Over the last 12 months the bank has added £1.2bn back onto the balance sheet, after a further £467m was released in Q4.
Lloyds announces dividend
In a boost for shareholders the bank announced a final dividend of 1.33p per share, bringing the total dividend for the year to 2p per share, and announced a share buyback worth £2bn, or 2.82p per share.
Although annual profits missed expectations, loans and advances to customers rose £8.4bn last year to £448.6bn, though this marked a decline from the Q3 level of £451bn. Customer deposits rose to £476.3bn, up £25.6bn from a year earlier, but this was also lower than in Q3.
Net interest margins over the year improved to 2.54% on average, rising to 2.57% in Q4, with an expectation that this will improve to above 2.6% in 2022.
Challenging times
Overall, Lloyds has issued a decent set of numbers, but due to the impact of the Omicron variant in Q4, there appears to have been a slowdown in the wider business.
In light of this morning’s events in Ukraine and the soaring cost of living, Lloyds is likely to find the start of 2022 even more challenging from a business point of view, and any share price reaction this morning could well reflect that uncertainty.
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