Lloyds profit rises despite murky UK outlook, motor finance charge

Lloyds Banking Group’s (LLOY.L) full-year profit jumped by 57 per cent, it said on Thursday, despite Britain’s faltering economy and a 450 million pound ($571 million) charge for potential costs from a regulatory review into motor finance.

Shares in the lender were up 4.7 per cent by 1400 GMT as investors warmed to a 2 billion pound buyback and shrugged off uncertainty over whether the bank had made a big enough provision for customers claiming they were overcharged on car loans.

Lloyds also disclosed in its annual report that it was facing a UK investigation into its anti-money laundering controls.

In a messy set of earnings for 2023, the bank’s profit was boosted by an unexpectedly light charge for bad loans despite Britain entering a recession in the second half of 2023. The 308 million pound charge compared with 1.5 billion pounds set aside the previous year.

Chief Executive Charlie Nunn told reporters this was partly down to a 700 million pound writeback on historic loans made against Britain’s Telegraph newspaper, which were repaid by the Barclay family in December.

As Britain’s biggest mortgage lender, Lloyds’ fortunes are closely linked with those of the struggling wider economy. But like its rivals, Lloyds has been boosted by lending revenue from higher Bank of England interest rates.

Lloyds said its adoption of more positive economic forecasts for 2024 helped to keep its bad loan charge low. It now expects UK growth of 0.5 per cent this year and house prices to fall by a more modest 2.2 per cent.

Lloyds reported a 2023 pretax profit of 7.5 billion pounds, up from 4.8 billion pounds a year earlier and slightly above analyst forecasts. The bank also announced a final dividend of 1.84 pence, in line with analyst forecasts.

It set out muted performance guidance for the year, with core margins forecast to fall to 2.9 per cent and return on tangible equity to 13 per cent before recovering to 15 per cent by 2026.

CAR FINANCE PROVISION

Lloyds said it was admitting no liability or wrongdoing in setting aside a 450 million pound provision to cover possible redress linked to an ongoing regulatory review into charging by car finance lenders. Some analysts estimate the bank’s potential costs could rise as high as 2 billion pounds.

Chief Financial Officer William Chalmers said the provision was the bank’s “best estimate” and declined to comment on analyst models.

“There will be question marks around how Lloyds has come to that figure … What we do know is that Lloyds is one of the more exposed banks should the FCA deem there was misconduct and customer loss,” said Hargreaves Lansdown analyst Matt Britzman.

Analysts at RBC have estimated the sector’s total compensation bill could reach 16 billion pounds, making it the costliest consumer banking scandal since the mis-selling of payment protection insurance (PPI).

Lloyds’ CEO Nunn was paid was 3.7 million pounds in 2023, down 2 per cent on 2022 remuneration, the annual report showed. This was largely driven by a lower bonus.

The bank also announced it had appointed former Banco Santander (SAN.MC) executive Nathan Bostock to its board after deputy chairman Alan Dickinson said he would step down.

Bostock was chief executive of the Spanish lender’s UK arm from 2014 until 2022.

($1 = 0.7907 pounds)