Lloyds Banking Group PLC (LSE:LLOY) reported first-quarter profits slightly ahead of expectations despite lower income and higher costs, with no extra charges against the ongoing regulatory probe into the motor finance sector.
Guidance for the full year was maintained, with margins expected to tighten further but not enough to prevent further shareholder returns.
Shares in the UK’s largest lender fell 2.6% to 49.97p in early trading.
An underlying profit of £1.76 billion was reported for the first three months of 2024, just above flat compared to the preceding quarter, down 26% year-on-year but slightly higher than the £1.73 billion average analyst forecast.
Statutory pre-tax profits of £1.63 billion were down 8% on the quarter and 21% on the year, and modestly below the City consensus of £1.66 billion.
Impairments of only £25 million were made, with no further charges relating to the potential impact of the Financial Conduct Authority review into historical motor finance commission arrangements, with the FCA having indicated it will update in September.
Underlying net interest income of £3.2 billion was flat on the quarter and down 10% on the year, slightly below the City consensus.
Operating costs of £2.4 billion were higher than the £2.33 billion average estimate, but for the full year management still expects costs of about £9.3 billion.
After announcing 1,600 job cuts as part of a major branch overhaul earlier this year, this resulted in “elevated severance charges” of £100 million in the period, with a bigger hit from the sector-wide change in the charging approach for the Bank of England levy.
This came as the banking net interest margin contracted to 2.95% from 2.98% in the preceding quarter and 3.22% a year ago, but marginally better than expected.
The CET1 capital ratio was trimmed to 13.9%, flat on a pro forma basis with the preceding quarter and in line with expectations.
Management’s guidance is to pay down to a CET1 ratio of circa 13.5% by year end, with chief executive Charlie Nun reaffirming the ambition of “higher, more sustainable returns”.