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Lloyds Banking looking to put its trials behind it

PPI, the HBOS acquisition and now the prospect of a rate rise hitting the mortgage market; it's all a bit of a trial for Lloyds
Lloyds Bank Black Horse
Lloyds opens the batting in banking results season

Lloyds Banking Group PLC (LON:LLOY) will be the first of the London-listed banks to report its third quarter results this month.

Investors will be keen to see whether the bank has been able to shrug off its ongoing legacy issues to deliver further growth.

In July the group reported is biggest half-year profits in eight years; however, the company is continuing to tackle compensation claims related to its payment protection insurance (PPI) mis-selling scandal and has set aside more than £18bn in provisions.

The market will be paying close attention on any further costs relating to PPI claims in the third quarter update on Wednesday.  Adding to its legal dramas, a trial brought against the bank by shareholders over its ill-fated takeover of HBOS in 2008 has started in the high court.

“Lloyds’ ability to step up the dividend could be a trigger for a re-rating, but regulatory change has muddied the waters on this recently. Although we don’t expect clarity until full year results in February 2018, we expect this to be a key topic of discussion with management,” said Rohith Chandra-Rajan at Barclays.

“In terms of operational performance, mortgage pricing has remained under pressure, but we expect offsets from lower funding costs to support the net interest margin. We will also look for delivery on Lloyds’ ability to begin growing its prime UK mortgage book.

“Little appears to have changed from a credit quality perspective so we expect the provision charge to remain low,” the analyst added.

“On non-operating issues, early experience of PPI claims after the two year time bar was triggered will be the key influence on any additional provisions.”

Consumer healthcare and respiratory pricing the hot topics at Glaxo

Given the recent weak performance of Reckitt Benckiser Group PLC’s (LON:RB.) health division and rumours that both Pfizer Inc (NYSE:PFE) and Merck & Co Inc (NYSE:MRK) are looking to sell off their consumer businesses, GlaxoSmithKline plc’s (LON:GSK) consumer healthcare arm will be in focus in Wednesday’s third quarter update.

As the former head of that business, new chief executive Emma Walmsley will also have a particular interest in how it’s faring.

A solid performance over the past three months would not only bode well for the current brands – which include Sensodyne and Nicorette – but could also fuel rumours that GSK is on the lookout for some of its rivals’ unwanted assets.

Elsewhere, keep an eye out for another healthy performance from the FTSE 100 group’s HIV treatments Tivicay and Triumeq, as well as continued growth from new respiratory products to help offset declines in Advair and Seretide.

“Commentary at the Q2 results on respiratory pricing was bearish; however, the facts are that: (i) management confirmed, not cut, long range guidance for flat or better respiratory sales 2015-20 even with generic Advair, and (ii) estimates already assume heavy price cuts even for the new respiratory products,” opined Liberum’s healthcare team, which thinks Glaxo’s shares have fallen far enough.

Significant announcements expected

Trading updates: Antofagasta (Q3), GlaxoSmithKline plc (Q3) (LON:GSK), Lombard Risk Management plc (LON:LRM),  Metro Bank PLC (LON:MTRO), Centaur Media PLC (LON:CAU), Cobham PLC (LON:COB), Lloyds Banking Group PLC (LON:LLOY)

Economic data: Second reading UK Q3 GDP; BBA UK mortgage lending data; German IFO business climate survey; US durable goods orders; US new home sales

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