Lloyds Banking Group PLC (LSE:LLOY)'s shares fell 2.6% in early exchanges as the lender reported flat annual profits alongside guidance which disappointed some in the City.
Gary Greenwood at Shore Capital noted the guidance, "is a little below consensus near-term and so may disappoint," while the banking team at Jefferies said, "Guides look typically conservative at this stage of the year - we do not see enough here to make consensus estimates go up materially."
Russ Mould investment director at AJ Bell added, “The numbers themselves were broadly in line with what had been forecast, though updated medium-term guidance will likely disappoint the market given it falls short of what its closest lookalike – NatWest – is promising in terms of returns."
The high street lender earlier announced a £2bn share buyback and little changed profits which were hit by rising bad debts.
The bank reported pre-tax profit for the year to December 31, 2022, of £6.93bn, little changed from £6.90bn in 2021, and broadly in line with City expectations for £6.95bn.
Net income of £18.0bn, up 14%, was supported by continued recovery in customer activity and UK Bank Rate changes, while underlying net interest income jumped 18%, primarily driven by a stronger banking net interest margin of 2.94% in the year - 3.22% in the fourth quarter.
But the FTSE 100-listed bank booked a £1.5bn impairment charge for the year and £0.5bn in the fourth quarter reflecting a deteriorating economic outlook.
Shareholders were rewarded with a final dividend of 1.60p making a total dividend of 2.40p, up from 2.00p in 2021, while the strong capital position prompted the bank to announce a £2bn share buyback. The pro forma CET1 ratio of 14.1% remained ahead of the ongoing target of 12.5%.
Lloyds said it intends to maintain a “progressive” dividend policy and expects to pay down to its target CET1 ratio by the end of 2024.
Looking ahead, the lender forecast its banking net interest margin to be greater than 305 basis points, below the 320 basis points predicted by rivals Barclays and NatWest, operating costs of around £9.1bn, an asset quality ratio of around 30 basis points and return on tangible equity of around 13%.
Lloyds said it has enhanced its medium and longer-term guidance, with operating costs now expected to be £9.2bn in 2024, with a cost:income ratio of less than 50% by 2026.
Asset quality ratio is now expected to be around 30 basis points in 2024 and return on tangible equity is now expected to be circa 13% in 2024 and greater than 15% by 2026.
Additional revenues from strategic initiatives of around £0.7 billion by 2024 and circa £1.5 billion by 2026 were forecast.
Shares in Lloyds were down 2.6% at 49.64p