Lloyds Banking Group said it would aim to more than double its profitability this year as the UK economy recovers from the impact of the coronavirus pandemic, after it became the latest major British lender to report more resilient fourth-quarter results than expected.
The UK’s largest retail bank on Wednesday set a target return on tangible equity of between 5 per cent and 7 per cent for 2021 — comparable to its level in 2019 and far higher than the 2.3 per cent achieved in 2020.
William Chalmers, chief financial officer, said Lloyds and the wider economy’s recovery would be helped by the fact that the UK’s Covid-19 vaccination programme and the lifting of coronavirus restrictions were both progressing faster than the bank had predicted.
The improved outlook came as Lloyds reported a pre-tax profit of £792m for the final three months of 2020, compared with an average analyst forecast of £471m.
All four of Britain’s largest retail banks — Lloyds, HSBC, Barclays and NatWest — outperformed analysts’ expectations in the fourth quarter thanks to a sharp drop in provisions for future loan defaults.
Lloyds set aside £128m for new impairments in the fourth quarter, bringing its total for the year to £4.2bn — below its previous guidance. Revenues were £3.6bn, down 12 per cent year on year.
The bank followed its main rivals in announcing the maximum full-year dividend payout allowed under the Bank of England’s current restrictions designed to preserve banks’ capital during the pandemic.
Unlike Barclays and NatWest, Lloyds did not provide an explicit figure for how much money it would return to shareholders after restrictions are lifted, but Chalmers stressed that it had “a very strong capital position” and said it would consider whether to resume share buybacks at the end of the year.
The results marked the final full-year figures under outgoing chief executive António Horta-Osório, who will leave Lloyds at the end of April after a decade in charge to become chairman of Credit Suisse. He will be replaced by HSBC executive Charlie Nunn, though the bank said on Wednesday that Nunn would not arrive until mid-August. Chalmers will serve as acting chief executive in the interim.
Horta-Osório said: “I feel I will be leaving the bank in a better position than it was in when I joined, which should be the purpose of any CEO.”
The uncertainty created by the pandemic and the impending change of chief executive meant that Lloyds did not present a detailed three-year strategic plan after reaching the end of the last strategy in 2020. However, the bank did outline a number of priorities, including strengthening its focus on recent efforts to expand its insurance and wealth division and invest in digitisation.
The bank also said it would strengthen its investment banking unit, which is much smaller than at the other so-called Big Four UK banks. Chalmers said Lloyds would focus on foreign exchange and sterling rates products for its existing corporate clients.
“We see a large number of our clients who transact away from us, so we see an opportunity to improve our performance,” he said. “I think we can go a long way in terms of digitising processes, making products more accessible and improving our share of business with them.”
Lloyds will also invest more in its payments services to increase revenues from business customers.
Smaller rival Metro Bank also released full-year results on Wednesday, reporting an annual pre-tax loss of £311m. Like Lloyds, however, it experienced a substantial improvement in the second half of the year, with a sharp drop in loan loss provisions and an improved net interest margin.
Chief executive Dan Frumkin, who took charge of Metro last year, said “there’s momentum in the business”. He said he was “more confident today than I was a year ago” about the bank’s prospects but acknowledged that “the numbers still aren’t pleasing” and said it would take time to complete the turnround.
Frumkin echoed Lloyds’ optimism about a UK recovery: “If the reopening happens at the pace expected now and vaccines continue at the pace they’re being rolled [out] at, it would have upside for us as well . . . There are lots of signs indicating economic activity could really bounce back.”
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2021-02-24 11:56:35Z
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