Lloyds Banking Group PLC (LSE:LLOY) shares dipped around 2.5% after first-quarter results landed a touch below expectations.
It wasn’t a disaster by any stretch, but the shortfall, mainly due to higher costs and bad loan provisions, gave the market pause, especially with banks under scrutiny for how they handle margin pressure and economic uncertainty.
According to UBS, pre-tax profit was around 4% shy of consensus. That was down to two main factors: Higher operating expenses and larger-than-expected impairments.
The cost overrun stemmed from £80 million in severance charges as Lloyds moved early on headcount reductions, front-loading some expense now to ease pressure on future quarters. Without that, performance would have been largely in line.
Impairments, or provisions for potential loan losses, came in at £309 million, 11% above forecasts. UBS noted that this included a £100 million buffer against “tariff-related risks”, which could point to concerns over broader economic or geopolitical disruption.
On the brighter side, net interest margin (NIM), essentially the bank’s profit on lending, beat expectations at 3.03%, up six basis points from the previous quarter.
That was helped by stable loan balances and a more favourable mix of deposits, a key factor for earnings as banks compete for savers’ cash.
Lending rose 1.5%, driven by mortgages, while deposits edged up 1%. Lloyds’ core capital ratio, a measure of financial strength, slipped slightly to 13.5%.
UBS attributed part of that dip to temporary currency hedging movements that are expected to unwind later this year.
Importantly, the bank reaffirmed all its 2025 guidance, and that’s the key point.
Lloyds still expects to deliver £13.5 billion in net interest income, operating costs of £9.7 billion (excluding remediation), and a return on tangible equity of 13.5%. For shareholders, sticking to those targets helps offset the softer-than-expected start to the year.
UBS said the focus now shifts to whether this slight earnings wobble has helped “de-risk” the outlook by tackling costs early and bolstering loan buffers.
Future investor attention is likely to centre on deposit pricing, loan growth, and any fallout from the bank’s motor finance exposure.
So, while the update may have lacked excitement, Lloyds’ steady hand on guidance suggests the long-term plan is still on track.
The shares fell 1.84p to 71.44p.