Shares in Lloyds Banking Group plummeted by as much as four per cent this morning after the bank posted a six per cent drop in profits during the first quarter, beating analysts' expectations, but disappointing investors.
Lloyds has since recovered some of the ground, with shares down two per cent by mid-morning, but the fall will still be a blow to George Osborne who has made no secret of his hopes to sell off the final tranche of government shares in the bank.
Pre-tax underlying profits at Lloyds came in at £2.1bn in the three months to 31 March, down six per cent from £2.2bn in the same period last year.
Profits after taking account of restructuring costs, conduct provisions, write-offs because of market volatility, tax and everything else not deemed "underlying" dropped by 44 per cent to £531m.
Total income slipped back by one per cent to £4.4bn, while total costs also came down by one per cent to £2.1bn.
Underlying profits per share dropped from 2.3p in the first quarter of 2015 to 1.9p in 2016.
The bank's loan-to-deposit ratio remained unchanged at 109 per cent, and its net interest margin climbed from 2.6 per cent to 2.74 per cent.
Why it's interesting
The fact that Lloyds beat analysts' expectations in terms of profits by around £100m was not enough to satisfy impatient investors and could cause headaches in the Treasury.
Shares were swapping hands for as little 66p this morning - down 4.1 per cent from yesterday's close - before recovering slightly to 68p.
While investment banks have been on the slide as they grapple with extreme market volatility along with a string of new regulatory requirements, retail arms have been trying to go about their business as solidly as possible. And, after the payment protection insurance (PPI) scandal, without creating too much fuss.
The modest slip in profits, therefore, should be set against this backdrop.
In January, the chancellor announced the latest delay to the sale of the government's final 10 per cent shareholding in Lloyds as he didn't feel the price - which sunk as low as 56p in February - was good enough. At today's price of 68p, there is still some ground to make up on the break even rate of 73.6p.
What Lloyds said
Antonio Horta-Osorio, chief executive of Lloyds said:
In the first three months of this year we have continued to make good progress, delivering a robust financial performance and maintaining our strong balance sheet. These results demonstrate the strength of our differentiated, simple, low risk business model and reflect our ability to actively respond to the challenging operating environment.
We continue to support and benefit from a resilient UK economy and remain focused on delivering on our targets to people, businesses and communities.