Lloyds Banking Group PLC (LON:LLOY) does not have the best mix of business among its peers for the current coronavirus-affected market backdrop, analysts at Jefferies said and cut their forecasts for the bank ahead of next month's interims.
The FTSE 100-listed lender will need to take £3.2bn more in impairment charges this year, on top of the £1.4bn write-down made in the first quarter when it began to prepare for likely bad loans resulting from the coronavirus crisis.
Jefferies cut forecasts for both net income and non-interest income for this and the coming two years, leading to pre-tax downgrades of 10% through 2022.
Analysts downgraded their half-year statutory profit forecast for this year 30%, being a function of the lender’s already low earnings base and as items such as higher negative insurance volatility play through from the first quarter.
This resulted in the analysts cutting their share price target for Lloyds by 10% to 42p.
“The company has a competitive moat around costs,” the analysts said in a note on Thursday, but “no moat around revenue”.
Lloyds’ business mix is seen as “unfavourable” and “not supported by capital markets activity”, with the analysts now expecting a 16% decline in other income “as activity levels across corporate and retail remain weak and payments activity lower.”
Recent Bank of England data showed a 14% year-on-year decline in card balances, an acceleration from the prior 6% fall, with the analysts expecting the contraction to be re-affirmed in the May BoE data on 29 June.
The squeeze on card balances means group loan balances will be around 1% lower, hitting group net interest margin by around two basis points, though a fall in card balances is credit positive.
Jefferies kept its ‘buy’ rating, however, expecting these worst effects on Lloyds to be temporary.