Lloyds has warned of continued uncertainty in the UK because of Brexit as it posted flat profits for the first three months of the year.
António Horta-Osório, the bank’s chief executive, said that the lack of clarity about the UK’s exit from the European Union could “further impact the economy”. Pre-tax profit for the period was £1.6 billion, the same as last year.
George Culmer, Lloyds’ finance director, said that the uncertainty had led to a “business investment slowdown in the back end of last year and in the first quarter”. Lloyds remains “watchful and alert” but had not seen a deterioration in its consumer business, including credit card repayments, Mr Culmer, 55, added.
The bank has joined others in forecasting that any rise in interest rates by the Bank of England is likely to be delayed beyond the end of this year, he said.
Lloyds reaffirmed its performance targets including for its key net interest margin, its profit on the difference between what it charges for loans and pays to depositors, of 2.9 per cent for this year.
The bank revealed a further £100 million charge for payment protection insurance, bringing its total bill for the mis-selling scandal to £19.5 billion. Mr Culmer attributed most of the extra costs to the “surge” in demands for information from claims management companies for customers who in many cases did not turn out to have been sold PPI. The Financial Conduct Authority has imposed a deadline for claims of August 29 this year.
Lloyds also took a £339 million hit, which included the estimated break fee it will have to pay Standard Life Aberdeen for pulling out £100 billion of its funds from the asset manager on competition grounds before the contract was completed. The two companies have been embroiled in a wrangle for more than a year over the matter, with an arbitration panel ruling in March against Lloyds’ argument that the combination of Standard Life and Aberdeen Asset Management in 2017 created a direct competitor for its own division, Scottish Widows, thereby allowing it to remove its funds from the other company without paying a break fee.
Lloyds was disappointed by the decision but accepts it, Mr Culmer said. The bank is transferring most of the assets it has with SLA to Schroders. The two are planning a joint venture before June in the savings and investment area, reflecting Lloyds’ desire to boost this part of its business.
Lloyds is the biggest retail bank in the UK and owns Bank of Scotland, Halifax and Scottish Widows. It has more than 30 million customers and is valued by the stock market at £44 billion. It was bailed out by the government a decade ago with a £20 billion capital injection leaving taxpayers with a 43 per cent stake and returned to full private ownership in 2017.
The bank received good news from the Prudential Regulation Authority yesterday that it could reduce one of its capital buffers, reflecting its increased strength and stability since the financial crisis. As a result the bank can reduce its capital ratio from about 13 per cent to 12.5 per cent.
That has freed up about £1 billion in capital for the bank, prompting speculation that it will ramp payments to shareholders. Mr Culmer said that Lloyds would “make that determination at the end of the year based on all the factors we see”.