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Lloyds profits rise despite PPI hit

by LLB Reporter
1st Aug 18 7:00 am

Lloyds this morning announced a 38% rise in statutory profit to £2.3 billion in the first half of the year.

Net income rose 2% to £9 billion, and underlying profit rose 7% to £4.2 billion.

The bank’s net interest margin rose from 2.82% to 2.93%.

The bank increased its PPI provisions by £550 million.

The interim dividend was increased to 1.07 pence per share.

Laith Khalaf, Senior Analyst, Hargreaves Lansdown: “The huge jump in Lloyds’ reported profits can largely be summed up in just three letters – PPI. While the bank has taken another £550 million hit in the first half of 2018, that’s around half what it had to put aside this time last year.

“Next August marks the cut off-date for claims, which may flush out some more consumer activity, because there’s nothing that stimulates action quite like a deadline. In the short term that may mean Lloyds has to dip into its pockets again, but in the long run that’s going to free up a lot of cash for shareholders. The PPI scandal has now cost Lloyds over £19 billion over the last 8 years, money the bank would have dearly loved to use elsewhere.

“While the reported numbers are heavily skewed by PPI, Lloyds’ underlying profit growth showsthe bank is in rude health. Revenues are up, costs are flat and bad loans are very low and expected to remain so. It’s particularly encouraging that the bank’s net interest margin has ticked up, in part thanks to its acquisition of the MBNA credit card business, though that’s a trend we could see accelerate as interest rates rise.

“Despite its excellent business performance, Lloyds’ share price has drifted lower this year.CEO António Horta-Osório must be wondering just what he has to pull out of the bag to push the stock price up. Since taking over the reins in 2011, Horta-Osório has presided over a bank which has swung from an annual loss of £260 million to a profit of £3.5 billion. The share price meanwhile is at roughly the same level it stood at when he became CEO.

“That’s largely because Brexit means some investors don’t want to touch UK domestic companies like Lloyds with a bargepole. While this sentiment doesn’t look like shifting any time soon, Lloyds shareholders are being paid to wait. The bank is expected to deliver a total dividend of 3.44p this year, equivalent to a 5.5% income yield. Not bad, if you can get it.”

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