Bank of Scotland owner Lloyds wraps up reporting season 'in some style' and hikes bonus pool to £446m
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The UK’s largest lender said its quarterly statutory pre-tax profit topped £1.8 billion, up from £968 million over the same period in 2021. It took its full-year earnings to £6.9bn, matching 2021’s outcome.
The group saw its net interest income surge by nearly a fifth to £13.2bn in 2022 as it benefited from higher borrowing costs and a boost to its net interest margin - which shows the difference between what a bank charges for loans and pays for savings. Its loan book surged by £6.3bn to a whopping £475bn over the year.
Lloyds’ results follow full-year figures from fellow big guns Barclays, HSBC, NatWest and Santander. Royal Bank of Scotland owner NatWest Group saw its profits surge by more than a third to the highest level since the financial crisis. The banking giant, which remains about 43 per cent owned by the taxpayer following a further share disposal, took in more income in 2022 as it ramped up mortgage lending amid a higher interest rate environment. The group’s operating pre-tax profits reached £5.1bn over the year, up 34 per cent from £3.8bn in 2021.
Richard Hunter, head of markets at Interactive Investor, said: “Lloyds has brought the curtain down on the banks’ reporting season in some style, exhibiting its traditional strengths of efficiency, profits and generous levels of shareholder returns. The rising interest rate environment is one which is usually positive for banks, as has been seen for most of its peers, and Lloyds is a particular beneficiary given its UK focus and business model. The continued strength of Lloyds’ significant mortgage book was again in evidence. At the margins, the wealth business is also being targeted for expansion, with some promising early signs in its relatively new mass affluent business, which aims to deepen customer relationships.”
Alongside an increase in its dividend, Lloyds kicked off a major £2bn share buyback programme, though the lender also revealed it had put aside £1.5bn in credit provisions as it cautioned over an uncertain economic outlook and an uplift in borrowers defaulting on loans this year. It said in the fourth quarter it had observed a small increase in defaults, but that credit performance was generally strong despite the cost-of-living crisis.
Michael Hewson, chief market analyst at CMC Markets UK, noted: “In a week that has seen the NatWest share price retreat from levels last seen in early 2018, the Lloyds’ share price has struggled to return to the levels we saw just over a year ago prior to the Russian invasion of Ukraine. This underperformance rather begs the question as to why Lloyds has consistently struggled to match the share price performance of its UK peer despite being consistently more profitable over the same period.
“One reason could be Lloyds’ business model and the fact its fortunes closely track the ups and downs of the UK economy, particularly mortgages and consumer credit. Another reason is that historically Lloyds has always been a conservative banking organisation, with a slow and steady business model. In the earnings call, chief executive Charlie Nunn said that there was a slightly more negative outlook for the UK economy in Q4.”
John Moore, senior investment manager at wealth firm RBC Brewin Dolphin, added: “Lloyds has finished off the major UK banks’ results season with a performance that is 80 per cent NatWest and 20 per cent Barclays. Profits have been flat year-on-year, with bad loan provisions adding extra costs, among other moving parts. The bank has a history of prioritising its dividend, which is up 20 per cent on last year, and acts as a good indicator of sentiment from management.
“Alongside the dividend increase is a £2bn share buyback programme, underpinned by enhanced guidance for the years ahead - all of which suggests a relatively positive outlook for Lloyds. The bigger question, though, is what Lloyds will do with its existing portfolio of businesses - while there are no answers on that front, updates will likely be a feature of future statements.”
Chief executive Nunn took home a total pay packet worth £3.8m for 2022, including a £1.3m shares bonus. The annual report for Lloyds, which also owns Scottish Widows, showed the bank’s staff bonus pool increased by 12 per cent to £446m “as a result of the group’s strong performance in 2022”. It follows NatWest disclosing that its chief executive, Alison Rose, received a pay packet totalling £5.25m. The RBS owner also ramped up the bonus pool for its bankers by nearly £70m in 2022, to total £367.5m.
Nunn said: “While the operating environment has changed significantly over the last year, the group has delivered a robust financial performance with strong income growth, continued franchise strength and strong capital generation, enabling increased capital returns for shareholders. We know that the current environment continues to be challenging for many people and have mobilised the organisation to further support our customers.
“Our purpose-driven strategy is more relevant now than ever before. We remain committed to ‘Helping Britain Prosper’ and helping the country recover from the current economic uncertainties. We continue to believe our strategy will create higher, more sustainable returns, as reflected in our enhanced guidance. We are excited about the opportunities ahead,” he added.