Lloyds shares jump despite profit slump
Lloyds Banking Group’s shares jumped three per cent following market open, despite recording a profit hit after the firm set aside additional funds for potential motor finance payouts.
The FTSE 100 lender’s pre-tax profit was down 20 per cent at £6bn, compared to £7.5bn in 2023.
Analysts estimated the bank’s profit before tax at £6.5bn, a predicted 13 per cent drop.
Pre-tax profit also tumbled in the fourth quarter to £824m, a 55 per cent drop from the £1.8bn pocketed in the third quarter.
Lloyds announced it had reserved an additional £700m in provisions regarding the motor finance scandal, following the £450m it had already put aside in February 2024.
The new sum trumps provisions made by Lloyds’ rivals after Santander set aside £295m in November 2024, and Barclays announced it had reserved £90m for potential payoffs last week.
The impact of motor finance commission disrupted the bank’s return on tangible equity, which was at 14 per cent before the provision charge and dropped to 12.3 per cent afterwards.
John Moore, senior investment manager at RBC Brewin Dolphin, said: “Lloyds is rounding off the major UK banks’ results with lower numbers than the market expected.
“Among its peers, Lloyds is the most exposed to the UK, and mortgage lending in particular – motor finance provisions, falling interest rates, and a sluggish housing market were always going to be immediate challenges.”
However, Moore said Lloyds remains in a “good position”.
“But, as ever with Lloyds, the reasonable question to ask is: what’s next? The big opportunity is in what the bank refers to as ‘other’ income, which now accounts for £5.6 billion.”
Richard Hunter, head of markets at interactive investor, commented “Lloyds finds itself in the midst of attacks from several angles, but all things considered is standing up defiantly to the challenges.”
Hunter added: “Overall, a positive direction of travel towards a more streamlined and digital business, underpinned by a healthy financial position, are elements of proof that the bank remains on track.
“Despite the headwinds, the shares have been positively re-rate of late and have added 47 per cent over the last year, as compared to a hike of 13 per cent for the wider FTSE100.”
Lloyds announces £1.7bn share buyback
Despite the drop in income, Lloyds announced it would implement a share buyback scheme of up to £1.7bn.
The bank also announced a total ordinary dividend of 3.17p per share, up 15 per cent from the prior year.
Shore Capital’s Gary Greenwood said the announced buyback gave the impression “management is not overly concerned about the motor finance issue spiralling out of control”.
“Given the shares are up 50 per cent over the past year and there is no underlying upgrade to guidance, we would expect a fairly muted share price reaction today,” he added.
Dan Cooper, UK Banking and Capital Markets Leader at EY, said: “UK banks delivered strong Q4 2024 results, achieving year-on-year revenue growth of 8%, despite the Bank of England cutting rates three times from their 2024 peak.
“Net interest income continued to recover from a dip in Q2, supported by a slowdown in the rate of deposit churn from current to savings accounts, as well as a resurgence in mortgage lending.
“However, while cost growth was contained to 1% as inflation fell, spending on core investment programmes around modernisation and resilience remained significant for UK banks.
Cooper added: “Looking out across 2025, banking leaders remain cautiously optimistic.”
Elsewhere, Lloyds’ net interest margin reduced by 16 basis points over the last year to 2.95 per cent.
This was in line with full-year guidance.
Earnings per share fell to 6.3p, down 1.3p since 2023.
Commenting on the results, group chief executive Charlie Nunn said: “In 2024 we continued to Help Britain Prosper, delivering for our customers, shareholders and wider stakeholders.”
Nunn added: “Looking forward, we are building momentum as we enhance our franchise and deliver differentiated outcomes for our customers.
“Our strategy is transforming our capabilities, enabling us to deepen relationships with our customers, grow in high value areas and drive cross-Group collaboration.
“We are confident of generating more than £1.5bn of additional income from our strategic initiatives by 2026 as we build towards higher, more sustainable returns.”