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Lloyds posts flat profit as it takes hit for ending Standard Life Aberdeen contract early

Lloyds maintained its financial targets for the year and said it remained confident on the outlook despite Brexit uncertainty

Lloyds
Lloyds set aside a further £100mln for PPI claims in the quarter

Lloyds Banking Group PLC (LON:LLOY) reported flat first-quarter profit as it took a hit for the early termination of an investment management contract with Standard Life Aberdeen PLC (LON:SLA) and an extra provision for payment protection insurance claims.

Statutory profit before tax for the three months to the end of March was broadly unchanged on the prior year at £1.6bn and net income edged up 2% to £4.4bn.

The bank incurred a £339mln charge related to banking volatility and severance costs for pulling £100bn worth of assets from SLA.

In March an arbitral tribunal ruled that Lloyds and its Scottish Widows pension business were not entitled to serve notice last year to end an asset management contract with SLA.

READ: Lloyds not entitled to end £100bn asset management deal with Standard Life Aberdeen, tribunal rules

Lloyds had argued that Standard Life’s merger with Aberdeen Asset Management allowed it to end the contract, which was due to expire in 2022.  

Despite the tribunal ruling, Lloyds said it would push ahead with plans to transfer the assets to Schroders and Blackrock.

The lender also set aside a further £100mln for compensation payments related to PPI misconduct in the quarter. 

Lower operating costs lifts underlying profit 

Operating costs fell by 3% to £1.9bn, driving an 8% rise in underlying profit to £2.2bn. 

Restructuring costs decreased 9% to £126mln due to the completion of the integration of the MBNA credit card business Lloyds bought in May 2017.

The cost to income ratio fell to 44.7% from 47.8% last year. 

The net interest margin – the difference between interest earned on loans and money paid on deposits – dipped to 2.90% from 2.93% last year.

The common equity tier 1 capital ratio fell to 13.9% from 14.1%.

Risk weighted assets edged down 1.4% to £211bn and the return on tangible equity increased to 12.5% from 12.3%.

Lloyds maintained its financial targets for the year, including a net interest margin of 2.9%, capital build of 170 basis points to 200 basis points, operating costs of less than £8bn, a decline in the cost to income ratio and a return on tangible equity of 14-15%.

“While Brexit uncertainty persists, and continued uncertainty could further impact the economy, I remain confident that our unique business model, and in particular our market leading efficiency and targeted investment, will continue to deliver superior performance and returns for our customers and shareholders,” chief executive Antonio Horta-Osorio.

Lloyds a cash cow for income seekers, says analyst 

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "Overall it’s a familiar story for Lloyds – the bank’s put in a solid performance, slightly marred by some one-off items.

"The share price has performed well so far this year, but even so Brexit continues to dominate sentiment, as Lloyds is indelibly plugged into the domestic economy.

"With a yield well over 5% though, Lloyds still looks like a bit of a cash cow for income-seekers."

Shares dipped 0.6% to 63.1p in morning trading. 

Quick facts: Lloyds Banking Group

Price: 64.33 GBX

LSE:LLOY
Market: LSE
Market Cap: £45.06 billion
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