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Lloyds to post weaker profits as PPI claims deadline looms

Last updated: 06:00 31 Jul 2019 BST, First published: 12:32 30 Jul 2019 BST

Lloyds

Lloyds Banking Group PLC (LON:LLOY) will fire the starting gun on half-year earnings season for the UK’s biggest banks on Wednesday.

Like the rest of the sector, Brexit concerns, tough competition in mortgage lending and a housing market slowdown have weighed on bank’s share price and muddied the outlook for the second quarter.

UBS expects the bank to report an adjusted pre-tax profit of £1.9bn for the second quarter, compared to £2.2bn last year. It predicts the total income of £4.5bn, down from £4.65mln.

The net interest margin – the difference between money earned on loans and paid on deposits – is forecast to edge down to 2.90% from 2.91% last year due to a competitive mortgage market.

The bank has, however, improved its capital position so shareholders will want to see the interim dividend lifted. 

Investors will also be keeping an eye on any further provisions for payment protection insurance (PPI) as the August 29 deadline for making claims approaches.

Lloyds set aside an extra £100mln to cover PPI in the first quarter.

Since then, the company has also agreed to pay Standard Life Aberdeen PLC (LON:SL.) £140mln to settle their dispute over a £100bn fund management contract.

The bank scrapped the contract when Standard and Aberdeen merged but a tribunal in March ruled there were no grounds for that action.

Taylor Wimpey forward order book eyed

Housebuilder Taylor Wimpey PLC (LON:TW.), whose second-quarter results are due on Wednesday, has so far managed to defy any talk of a slowdown in the housing market.

Trading was strong in 2018 and that has continued into 2019. Results earlier this year showed a rise in revenue and completions, which helped to boost profits by 18%.

“With strong cash balances, the dividends have been good and are expected to remain so,” said The Share Centre in its preview.

“However, some analysts are still concerned that increased levels of political and economic uncertainty in the future could result in a slower rate of growth. So investors will be looking at the forward order book to see if there are any signs of that.”

Fed to cut interest rates

Away from corporate news, the US Federal Reserve is seen cutting interest rates for the first time in a decade. 

A 25 basis point cut to rates is expected, which would please President Donald Trump, who has been pressuring the cental bank to loosen policy to weaken the dollar to boost exports.

“The Fed’s first rate cut in a decade comes at a moment when the GDP grows above 2%, the unemployment rate is at the lowest level in fifty years, the stock market is on fire with major US indices renewing record after record and the treasury bonds rally,” said Ipek Ozkardeskaya, senior market analyst at London Capital Group.

“In theory, the US economy doesn’t necessarily need an easier monetary policy, but the Fed will point out the US – China trade war and slowing global demand to justify a 25-basis-point action, along with two or more rate cuts down the road.

“Investors slowly abandon the idea of a 50-basis-point cut at this meeting. The probability for the latter stands at a slim 20%.”

 

Major announcements due:

 

US Federal Reserve rate decision

Trading updates: Next PLC (LON:NXT), 3i Group PLC (LON:III), Mitchells & Butlers PLC (LON:MAB)

Interims: Lloyds Banking Group PLC (LON:LLOY), BAE Systems PLC (LON:BA.), Taylor WimpeyPLC (LON:TW.), Direct Line Insurance Group PLC (LON:DLG), Smith & Nephew PLC (LON:SN.), St James’s Place PLC (LON:STJ), Rentokil Initial PLC (LON:RTO), Smurfit Kappa Group PLC (LON:SKG), Serco PLC (LON:SRP), Dignity PLC (LON:DTY), Indivior PLC (LON:INDV), Man GroupPLC (LON:ENG), 4Imprint PLC (LON:FOUR), Ibstock Plc (LON:IBST), International Personal Finance PLC (LON:IPF), Intu Properties PLC (LON:INTU), Restore Plc (LON:RST), StatPro Group PLC (LON:SOG)

Finals: ANGLE PLC (LON:AGL), DWF Group PLC (LON:DWF), Hargreaves Services PLC (LON:SHP)

Economic data: Eurozone GDP, US ADP employment change

 

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