ii view: Why Lloyds Bank results failed to inspire

With more PPI provisioning and Brexit to come, is there light at the end of the tunnel for Lloyds?

Third-quarter results to 30 September 2019

• Underlying profit down 12% to £1.82 billion
• Additional £1.8 billion Payment Protection Insurance (PPI) charge
• Statutory pre-tax profit down 97% to £50 million

Chief executive António Horta-Osório said:

"In the first nine months of 2019 we have made strong strategic progress and delivered solid financial performance in a challenging external environment. I am disappointed that our statutory result was significantly impacted by the additional PPI charge in the third quarter, driven by an unprecedented level of PPI information requests received in August. However, our performance continues to demonstrate the resilience of our customer franchise and business model, the strength of our balance sheet and that our strategy is the right one in this environment.

"We will maintain our prudent approach to growth and risk whilst continuing to focus on reducing costs and investing in the business to transform the Group for success in a digital world. Although continued economic uncertainty could further impact the outlook, we remain well placed to support our customers and to continue to Help Britain Prosper."

ii round-up:

Lloyds Banking Group (LSE:LLOY) is home to household brand names including Lloyds Bank, Halifax, Bank of Scotland and Scottish Widows.

In the wake of the 2008 financial crisis, Lloyds has restructured to become a UK focused bank with over 2,000 branches.  

In May, the bank announced its intention to switch and start paying dividends on a quarterly basis, starting the first quarter of 2020. 

For a round-up of these third-quarter results, please click here.

ii view:

Lloyds has come a long way. Its journey through the financial crisis and back to the relatively dull but sturdy bank it once was is largely complete. The closure of PPI claims at the end of August and the bank's further provisioning should mark the end of another difficult chapter. Online banking and a repositioning of its asset management proposition now occupy management day to day, with cost reduction a core underlying theme. 

For investors, Lloyds' exposure to the UK economy and what Brexit will mean head the risk list. The UK must avoid a 'hard' Brexit and grow the economy faster than it is currently for Lloyds shares to stage a long-lasting share price recovery. Interest rate cuts will put further pressure on margins. If Brexit goes badly, investors will require even more patience, perhaps compensated for by the attractive prospective dividend yield close to 6%.

Positives

• Operating costs being cut
• Historic dividend yield of over 5% is attractive
• Lloyds passed the Bank of England stress test back in 2018

Negatives

• Exposure to UK economy and Brexit generate uncertainty
• An additional £1.8 billion charge taken for PPI provisions 
• Competition in the mortgage market is fierce 

The average rating of stock market analysts:

Cautious buy