Lloyds Banking Group misses profit targets as £650m PPI provisions weigh heavy
Lloyds Banking Group has undershot analyst profit expectations for the first half, with a £650m provision for payment protection insurance (PPI) pay outs denting its earnings.
The bank posted pre-tax profit of £2.9bn, falling short of the analyst consensus of £3.45bn.
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The bank was hit with an additional £550m provision in the second quarter as the deadline for claiming compensation for mis-sold PPI approaches.
The bank also agreed to pay Standard Life Aberdeen £140m to settle a dispute over Lloyds’ decision to withdraw £109bn from the fund manager.
As a result of the charges, the bank said it expects capital build to be at the lower end of its 170-200 basis points range and for return on tangible equity to be around 12 per cent.
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The bank’s chief executive Antonio Horta-Osorio said: “In the first six months we have delivered a robust underlying profit of £4.2bn, in line with prior year, with a statutory profit after tax of £2.2bn, despite an additional PPI charge of £650 million.”
Horta-Osoria said business confidence had suffered from recent economic uncertainty.
“The economy has remained resilient, however the continued economic uncertainty is having an impact on business confidence and leading to some softening in international economic indicators. Companies’ investment and employment intentions have both declined in the second quarter of 2019 while global growth has softened and interest rate expectations have declined. Despite this the consumer sector remains robust with increased levels of employment and rising real wages, supporting consumption and GDP growth,” he said.
Shares fell four per cent this morning to 52p.
Richard Hunter, head of markets at interactive investor,said: “A largely uninspiring second quarter has contributed to a half-year result which is for the most part forgettable, even if Lloyds itself is for the moment content with plotting a stable course.”
Michael Hewson, chief market analyst at CMC Markets UK, said: “On balance these are a decent set of numbers with statutory pre-tax profits for the half year at £2.9bn, against a tough economic backdrop, with management appearing to adopt a responsible attitude to managing risk with a cautious update against such a difficult economic backdrop.
“This attitude is reflected in the statement with management acknowledging that business confidence and investment has slowed, and warning that due to higher charges the capital build requirements for the year are likely to be at the lower end of the target range for 2019.”
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