Wednesday 26 October 2016 4:59 pm

Lloyds Banking Group shares recover as profits slide and it puts £1bn aside for PPI claims

Lloyds shares recovered from a drop this morning, after the bank revealed profits tumbled during its third quarter – and it set more money aside to cover payment protection insurance (PPI) claims.

The figures

Statutory pre-tax profits dropped to £811m for the three months to September, down 15 per cent from £958m the year before. 

Net interest income also slid, dropping to £2.8bn, down one per cent from last year's £2.9bn.

As some analysts predicted, the bank has also boosted the amount it puts aside to cover PPI claims, adding £1bn to its provision, compared with a £500m charge it made during the same period the year before. The bank put a £150m charge through its accounts to cover other conduct issues.

Also predicted by the analysts, the lender's pension swung into a deficit during the quarter, to the tune of £740m.

However, looking at the bigger picture, the figures are more promising. Across the first nine months of the year, net interest income inched up by one per cent to £8.6bn, while statutory pre-tax profit grew by an impressive 52 per cent to £3.3bn from £2.2bn.

Shares dropped to 3.3 per cent at 53.53p in early trading, but have since recovered and closed flat at 55.51p

Why it's important

Lower for longer interest rates have not made life easy for the banks, especially after the Bank of England cut the base rate to a mere 0.25 per cent over the summer. Little wonder Lloyds has seen its net interest income squeezed over the last three months.

PPI continues to be a problem for the banks, especially after the Financial Conduct Authority announced in August it was setting a deadline for complaints of June 2019, not spring of 2018 as had previously been proposed.

What Lloyds said

Lloyds Banking Group chief executive Antonio Horta-Osorio said:

The group has delivered robust underlying financial performance in the first nine months of the year with statutory profit up over 50 per cent to £3.3bn, demonstrating the strength of our differentiated, UK focused, simple, low risk business model.

The group’s transformation and successful execution of strategy, along with its competitive advantages in costs and risk, also position it well to achieve our goal of becoming the best bank for customers and shareholders.

What analysts said

Laith Khalaf, senior analyst at Hargreaves Lansdown, remarked:

The Lloyds share price has taken a hammering as a result of the Brexit vote, and it will take some time for the bank to recover its poise, however for the moment things don’t look to shabby for the bank, despite the EU referendum result.

Neil Wilson, markets analyst at ETX Capital, said:

The increase in PPI provision was not a surprise given the regulator’s decision to extend the deadline for claims to June 2019. Investors have cooled on Lloyds of late and these results won’t make them love it any more.

In short

Banks aren't out of the woods just yet