Lloyds costs soar as lender increases provisions after tariff turmoil
Lloyds Banking Group’s profit took a hit in the first three months of the year as the domestic-focused bank’s operating costs soared.
The FTSE 100 giant, which includes Lloyds, Halifax and Bank of Scotland, met analyst expectations for pre-tax profit at £1.5bn – marking a seven per cent drop from the first quarter of 2024.
Shares in Lloyds slumped nearly two per cent during early trading on Thursday.
Profit woes were driven by a six per cent surge in operating expenses to £2.6bn. The bank cited growth costs and the timing of strategic investments, including planned severance for the first-quarter.
Lloyds made an impairment charge of £309m, compared to the £57m reserved in the first quarter of 2024.
The firm said this included a £100m central adjustment to address the downside risks of President Donald Trump’s erratic tariff policies announced at the beginning of April.
Loans and advances to customers increased £7.1bn to £466.2bn and net income rose four per cent to £4.4bn, but was offset by rising costs.
Net interest income remained steady at £3.3bn – broadly in line with takings from the fourth quarter of 2024.
But, the bank said inflationary pressures had weighed on expenses.
Lloyds’ domestic-leaning model as Britain’s biggest mortgage lender makes net interest income a critical source of taking for the bank.
Lenders booked record profits in 2024 on the back of post-financial crisis high interest rates.
But the Bank of England has since whittled rates down to 4.5 per cent, from 5.25 per cent last July, and analysts have pencilled in four cuts for 2025.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: ““This was more of a canter than a full gallop from Lloyds, as first-quarter results stumbled slightly at the final hurdle.
“Higher impairments were partly to blame for the small profit miss, but this was largely due to caution around the economic outlook rather than any real issues with borrowers. Default rates across the portfolio remain in excellent shape, and management sounded confident about the outlook for the year.”
Motor finance ruling looms
Lloyds’ domestic lean allowed it to skirt significant stock hits during Trump’s tariff onslaught, compared to its FTSE 100 counterparts.
Shares have risen nearly one per cent in the last month, whilst its peers HSBC and Standard Chartered remain down over five per cent.
The lender is instead haunted by another scandal as it awaits the Supreme Court’s ruling on motor finance.
Lloyds has reserved £1.2bn in provisions for the car mis-selling scandal, which pertains to the Financial Conduct Authority’s investigation into discretionary commission agreements that allows brokers to effectively set their own interest rates.
Lloyds fourth quarter profit for 2024 slumped to £824m reflecting the provisions.
The financial watchdog said this opened opportunities to overcharge customers through vague deals and forbade the use of DCAs in 2021, claiming it would save customers £165m a year.
Analysts at RBC predict a downside scenario for the lenders could put Lloyds on the hook for £4.6bn.
Lloyds is one of a fleet of major British lenders restructuring their branch network. The firm is set to close 27 sites in May.
In February, CityAM revealed the lender had put some 6,000 tech and engineering jobs under review as part of its digital over haul to modernise its banking offer.
Charlie Nunn, Lloyds’ chief executive, said: “We continue to make good progress on our strategic transformation and deliver innovative ways for our customers to manage their financial needs and achieve their financial aspirations, in line with our purpose of Helping Britain Prosper.
“This supports our ambition of higher, more sustainable returns that will underpin delivery for all of our stakeholders.
He added: “Our differentiated business model stands out in the context of recent market volatility and economic uncertainty and helps support UK households and businesses as they further strengthen their financial resilience.”