Lloyds to slash 3,000 more jobs as interim profits beat forecasts

Reaffirming its full year guidance for net interest margin and cost:income ratio, the bank posted an underlying pretax profit £4.2bn in the half year to end-June, down 5% on last year's or 2% if excluding TSB but ahead of consensus estimates of £4.06bn.

Statutory profits were more than doubled to £2.45bn, largely thanks to making no further PPI provisions and total 'conduct provisions' falling to £460m from £1.8bn.

Earnings per share were down to 3.9p from 4.6p but the board declared an interim dividend of 0.85p per share, up 13%.

Profits were hit by total revenues falling 1% to £8.87bn and higher loan impairments which proved more than enough to outweigh a 3% reduction in operating costs from chief executive António Horta-Osório's simplification programme.

Having already slashed £0.6bn of the £1bn of targeted annual costs in response to the lower interest rate environment, the Spaniard unveiled the new round of cuts that would help trammel costs towards a new target of £1.6bn.

Given the uncertainty following the Brexit vote there was no change to formal longer term guidance at this stage, the board conceded it "is possible that this capital generation may be somewhat lower in future years than previously guided"

Horta-Osório said the impact of Brexit would be dependent on economic and political outcomes which still remain uncertain, but he reduced expectations for capital generation by around 160 basis points of CET1 capital in 2016 from 2% to 1.6%, pre-dividend, due in particular the effect of currency rates on risk weighted assets.

He added: "Following the EU referendum the outlook for the UK economy is uncertain and, while the precise impact is dependent upon a number of factors including EU negotiations and political and economic events, a deceleration of growth seems likely.

"The UK, however, enters this period of uncertainty from a position of strength, following continued private sector deleveraging, significantly improved mortgage affordability and low levels of unemployment. For Lloyds, our simple and low risk, UK focused, retail and commercial business model, together with the simplification and transformation of the business in recent years, position us well to continue doing the right thing for our customers and deliver strong returns for
shareholders."

Analyst Laith Khalaf at Hargeaves Lansdown said while Lloyds still has a strong capital position, with a CET1 ratio of 13%, its ability to generate extra capital impinges on its ability to pay out cash to shareholders in the form of dividends and if it decides to cut payments to shareholders, it’s likely to be the special dividend at the end of the year will be first in the firing line.

"This latest dividend now cuts the government’s breakeven price on the Lloyds bailout to just 7.5p, well below the current price of 56p," he said.

"Hundreds of thousands of private investors are still waiting on tenterhooks to learn if the new Chancellor is still planning to go ahead with the public sale on the terms agreed by his predecessor. Clearly the government has a lot on its plate right now, but we would urge the Treasury to confirm the public sale is still going ahead at the earliest opportunity, to afford investors some measure of certainty in their financial planning."

Shares in Lloyds fell 2.6% to 54.32p by 0900 BST on Thursday.