PPI takes its toll on Lloyds’ annual profits

Despite a rise in Q4 profits last year, the banking giant failed to meet expectations

Article updated: 20 February 2020 12:00pm Author: Joe Healey

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  • Group posts a rise in pre-tax profit for Q4 compared to the previous year but still ended up underwhelming expectations for the overall year
  • For the whole year, pre-tax profit came in at £4.39bn compared to £5.96bn in 2018
  • Figures not helped by the Group’s £2.4bn and £1.4bn charges related to PPI and tax respectively
  • Despite the tough year, the Bank declared a final dividend of 3.37p, 5% higher than 2018
  • Recommendation: Given the current market difficulties and competitiveness in the UK mortgage space, we keep our ‘Hold’ recommendation for income seekers who have a medium appetite for risk.

Lloyds posted a rise in pre-tax profit for Q4 compared to the previous year but still ended up underwhelming expectations for the overall year. For the whole year, pre-tax profit came in at £4.39bn compared to £5.96bn in 2018. The figures were not helped by the groups £2.4bn and £1.4bn charges related to PPI and tax respectively. Underlying profits, the group’s internal measure dropped to £7.53bn, dropping 7% and undershooting analyst expectations of £7.85bn. Despite the tough year, the group declared a final dividend of 3.37p, 5% higher than 2018.

These results highlight the difficulty being faced by the major lenders, with falling profit margins and low interest rates. As a result, the company have outlined that net interest margins would decline to between 2.75-2.8%. However, given the market difficulty, Lloyd’s performance remained relatively resilient with the group’s restructuring and cost-cutting measures helping to support the bottom-line.

Of course, being heavily UK-exposed there still remains uncertainty surrounding the future of the UK’s relationship with the EU. However the group should start to see light at the end of the tunnel; with PPI charges now behind them, cost-cutting measures taking effect and investments in technology helping to add flexibility and scale, the company can now push forward into 2020 on the back of an improving domestic outlook post-election.

Given the current market difficulties and the competitiveness in the UK mortgage space, we keep our ‘HOLD’ recommendation for income seekers who have a medium appetite for risk.


All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Joe Healey

Investment Research Analyst

Following his completion of the graduate scheme, Joe is an Investment Research Analyst covering equities. He holds a BA Hons Business Management degree and is currently studying towards CFA Level II after passing CFA Level I in June 2019.

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