Lloyds’ first-half profit reached £3.1 billion ahead of budget and third-quarter test
Key Facts
Attention is turning to Lloyds as it approaches the release of its third-quarter results on October 29, a day after the UK budget statement due to be delivered by Chancellor John Healey in the House of Commons. The group said results would be published at 7 a.m., with Chief Financial Officer William Chalmers set to present the bank’s performance at 9:30 a.m. The timing puts the bank’s results in direct focus alongside fiscal policy details, amid expectations that the budget will include an increase in the additional tax on banks’ profits. AP said banks had benefited from higher interest rates and that "an increase in the additional tax on their profits is expected." That gives Lloyds’ announcement significance for investors weighing the bank’s operating performance against potential burdens on the sector.
Ahead of the budget, AP reported that John Healey’s statement would come at around 12:30 p.m. on October 28, after prime minister’s questions. The rates cited in an earlier draft for raising the tax from 3% to 8% have not been confirmed, so the available report remains an expectation of a tax increase without specifying its size. Healey had kept tax options open before the budget, saying banks were "an integral part of the economic fabric of this country and its future prospects." That reflects the balance facing policymakers between potential additional revenue and banks’ role in the economy. AP also said supply disruption in the Strait of Hormuz linked to the war in Iran had put pressure on global oil and gas supplies and contributed to higher inflation.
First-half results provide a benchmark for comparing Lloyds’ performance when it reports third-quarter figures. The bank posted net income of £9.7 billion, up 9% year on year, and statutory profit after tax of £3.1 billion, up 23%. Chief Executive Charlie Nunn said the group had delivered sustained income growth, improved operating leverage and strong credit performance. The group also announced a total capital return of £1.9 billion, including a 30% increase in the dividend per share and a £1 billion share buyback programme. In July, Lloyds’ profit beat expectations and the bank announced a £1 billion share buyback programme, according to an earlier story published on EL7.
Bank of England data offer a mixed picture of customer activity in the domestic market. Net borrowing by individuals through consumer credit rose to £2.5 billion in August, compared with £2.1 billion in July, exceeding the previous six-month average of £1.9 billion. By contrast, net mortgage approvals for house purchases fell to 54,900 in August from 55,900 in July. Approvals were below the average of about 60,100 over the previous six months. The effective interest rate paid on newly drawn mortgages also rose to 4.60% in August from 4.45% in July, increasing the importance of lending data in assessing the environment in which the bank operates.
The figures come as UK inflation accelerated, with the Consumer Prices Index rising 3.5% in the twelve months to September, compared with 3.1% in August. The Office for National Statistics said transport, particularly motor fuel, was the largest upward contributor to the monthly change in the inflation rate. Bank shares had come under pressure on October 16 after reports of a possible tax increase in the budget; Lloyds shares fell 2.3% that day, while NatWest shares dropped 2.05%. This coincided with rising borrowing costs and mounting pressure on public finances, according to the article carrying a Reuters byline. The combination of these factors puts Lloyds’ results within a broader focus on funding costs, taxes and credit demand.
The Bank of England will publish September Bankstats data on October 29 as part of its monthly money and lending releases, on the same day Lloyds reports its results. The Office for National Statistics has set November 18 for the release of October inflation data. These releases will add new indicators for tracking credit and price trends after the budget and the bank’s results. Lloyds will begin by publishing its figures at 7 a.m., followed by the chief financial officer’s presentation at 9:30 a.m. Investors will focus on the details of third-quarter performance and the tax decisions for the sector contained in the budget.