Lloyds shares fall after high interest rates boost income
Shares in Lloyds Banking Group tumbled on Thursday morning after the bank beat profit expectations in the third-quarter after a boost from high interest rates and a reduction in its cost base.
The FTSE 100 giant reported a £2.3bn pre-tax profit for the latest three months, up nearly 99 per cent on last year’s figure. The growth was driven by the absence of any major impairment charges after the bank added another £800m to its motor finance provisions last year.
Lloyds stock was down over three per cent in the early morning, trading below 100p.
Profit skimmed past the group’s internal consensus by two per cent in the latest quarter after the bank cut its operating costs. Lloyds recorded £2.37bn in costs, undershooting consensus by £28m. Its cost-to-income ratio came in at 47.2 per cent, against the 48 per cent expected.
This was supported by a nine per cent jump in income to £5bn, falling broadly in line with expectations. Net interest income rose 10 per cent to £11.1bn on the back of higher-than-expected interest rates. The bank’s net interest margin, which measures its profitability from lending, swelled 17 basis points to 3.21 per cent.
The bank’s return on tangible equity (RoTE) – a key metric of profitability – was 19.5 per cent for the period, up from 17 per cent in the second quarter. This also sat above the bank’s full-year RoTE guidance of around 16 per cent.
In its presentation slides, the group said costs were likely to rise in the fourth-quarter following the payment of the UK bank levy and end-year phasing of investment spend.
Lloyds targets savings with AI
Lloyds laid out plans for its next overhaul on its cost base earlier this year as part of a new strategy dubbed Accelerate 2030. The group is targeting around £2bn in cost savings by 2030.
Charlie Nunn, the bank’s boss, said the group’s overall cost-to-income ratio would reduce to less than 45 per cent in 2030, which will mark a drop from a 50 per cent target for 2026.
“As we near completion of our current strategic chapter, we are excited to begin executing on our new strategy, Accelerate 2030. This will ensure we can deliver continued, sustainable value for our customers and shareholders,” Nunn said.
The update follows banks being targeted for a tax raid in John Healey’s maiden Budget. The Chancellor doubled the surcharge, which sits on top of corporation tax, to six per cent from January for 15 months.
The Office for Budget Responsibility (OBR) has forecast the increase will raise around £1.5bn with surcharge receipts pulling in £2.4bn in 2027-28, up £1.2 billion from 2025-26.
Lloyds shares surged following the news after the tax hike came below expectations with many in the City anticipating the surcharge could return to its 2023 level of eight per cent as a permanent fixture.