All eyes on Lloyds’ bulky balance sheet

LLOYDS is expected to announce that it lost over £2bn to bad loans in a closely watched quarterly results presentation tomorrow, with investors keen to judge how it will manage its credit risk without the leadership of António Horta-Osório, who departed on sick leave last week.

Horta-Osório had accelerated the shrinkage of the group’s balance sheet in a drastic attempt to scale down its reliance on wholesale funding, but analysts expect the process to have slowed recently due to tough sale conditions in Europe.

A note by Société Générale analysts predicts that the speed with which it is selling non-core assets will have halved from offloading £8bn in the second quarter to £4bn in the third.

“Faster run-off would be positive for the shares given that these assets are responsible for the majority of Lloyds’ credit risk,” they wrote.

Markets are also sceptical about its net interest margin target, which remains at 2.15-2.3 per cent despite a rise in funding costs recently. The bank is thought to be mulling new guidance on the target tomorrow.

Lloyds is also understood to have begun contingency planning in case Horta-Osório does not return from leave in eight weeks. The bank had some rare good news on Friday, however, when the Co-operative Group confirmed it will bid on the 632 branches Lloyds is selling.