27 October 2022
If you are covering Lloyds’ Banking Group’s latest results, please find below a comment from Will Howlett, equity research analyst at Quilter Cheviot:
“Lloyds' latest results are a bit of a mixed bag with clear positives from the strength of net interest margins and capital generation being somewhat offset by higher impairments and a further reduction in tangible net asset value, a key driver of valuation. While pre-provision trends are stronger, underlying profit is down 17% year-on-year (with the prior year benefiting from the release of covid related provisions) and falling 12% below of consensus expectations. The shares are discounted but may struggle to re-rate given the uncertain economic outlook.
“On the impairments Lloyds took £700m charge on loan losses in Q3, materially higher than consensus expectations. The charge reflects the deterioration in forward looking indicators and is partially offset by £200m of covid related releases. The base case scenario looks for a GDP contraction of 1% next year, unemployment picking up to 4.9% and house prices falling by 7.9%, all of which looks relatively prudently set. While interest rate increases will benefit the bank, the depth and length of any recessionary period is likely to offset this and beyond.”
