Lloyds Banking Group announced this morning that pre-tax profits had more than doubled last year, sending its shares up 3.6 per cent in early trading.
The lender reported statutory profit before tax had gone up 158 per cent to £4.2bn in 2016, from £1.6bn in 2015.
While this was slightly below analysts' expectations of a £4.4bn profit, they were still largely positive about Lloyds' numbers. Here's a round up of analyst reactions:
Returning to full health
"Lloyds is returning to full health after being knocked for six by the financial crisis, since which time the bank has become safer, more profitable, and a good source of dividends for shareholders," said Hargreaves Lansdown analyst Laith Khalaf.
He highlighted the part that a reduction in PPI costs had to play in today's strong results. Last year, Lloyds paid out £4.8bn in conduct charges, with £4bn of that total going towards PPI claims.
"PPI has really been the major factor behind the big swing in Lloyds’ profitability. Looking forward to 2017, Lloyds will be hoping it has drawn a line under the whole PPI affair, and profits will thus be unshackled from a millstone that has cost the bank dearly in recent years," Khalaf said.
The bank has also been successful in cutting costs, though this has meant job losses and high street branch closures. Partly this is down to Lloyds cutting its cloth to adapt to banking in the post-crisis era, though it’s also partly due to the ongoing digitalisation of banking services, which is reducing the need for banks to have a physical presence on the UK high street.
However, Khalaf warned that "it's not all unreservedly good news", and pointed to Lloyds' flat top line "which shows how difficult it is for banks to make money with interest rates so low".
"The bank is also profoundly plugged into the domestic economy, so if there is a UK downturn as a result of Brexit, or indeed for any other reason, Lloyds will take a hit," he added. "If the bank does encounter choppy waters though, at least it’s doing so from a position of strength."
Spreadex analyst Connor Campbell also noted Lloyds' massive jump in profit was "in part thanks to the fact that its conduct charges more than halved to (an admittedly still hefty) £2.1bn".
"A 13 per cent increase in its total ordinary dividend, alongside a special dividend of 0.5p per share (something analysts speculated might not happen thanks to Lloyds’ £1.9bn MBNA purchase at the end of 2016) was the cherry on top for investors," added Campbell.
Lloyds' capital generation was better than anticipated, said Shore Capital analyst Gary Greenwood, which allowed the bank to announce a special dividend. He added that this improved capital performance is expected to carry on in 2017, with around 5-6p per share expected "which should be available to either return to shareholders or re-invest back into the business".
Greenwood added that its stock is "now trading broadly in line with our current fair value estimate of 65p which we provisionally expect to increase to around 75p".
"We therefore remain positive on Lloyds’ shares, viewing them as being attractively valued compared to its large quoted banking peers and also continue to view the name as a core holding for income funds seeking exposure to the banking sector," he said.
Surprising share price
"Whoever said low risk equates to low profitability obviously didn’t have Lloyds Banking Group in mind," said CMC Markets analyst Michael Hewson, commenting on the lender's "best numbers in 10 years".
"In a sign that the bank is slowly consigning its legacy issues to the dustbin of history, the bank’s provision for PPI was down to £1bn for 2016, and though there are some concerns that the recent scandal around HBOS may mean further provisions get set aside, there is optimism that shareholders can now focus on the future as opposed to dwelling on the past.," he said.
Hewson warned that "concerns about the UK economy given the Brexit vote are likely to loom large in the next year or so which means that the slightly higher provision for bad loans might be a signpost to a wider concern, either that or prudent contingency planning".
"All that is needed now is for the UK government to offload the remainder of its five per cent stake and the turnaround story would be complete, which makes it all the more surprising that the shares still remain below their pre-Brexit peaks of 72p," he added.
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