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Lloyds Banking Group Q1 2021 Interim Management Statement

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idpickering
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Lloyds Banking Group Q1 2021 Interim Management Statement

#407533

Postby idpickering » April 28th, 2021, 7:22 am

HIGHLIGHTS FOR THE THREE MONTHS ENDED 31 MARCH 2021

Solid financial performance reflects business momentum and improved economic outlook

• Statutory profit after tax of £1,397 million supported by business momentum and a release of expected credit loss provisions, given the improved economic outlook. Statutory return on tangible equity of 13.9 per cent with tangible net assets per share of 52.4 pence

• Recovering trading surplus of £1,748 million, a reduction of 12 per cent compared to the first three months of 2020, but an increase of 21 per cent on the final quarter of 2020

- Net income of £3.7 billion, down 7 per cent year on year (up 2 per cent on the previous quarter), with higher average interest-earning assets of £439 billion, net interest margin of 2.49 per cent and other income of £1.1 billion

- Total costs of £1.9 billion down 2 per cent, driven by continued operating cost control and lower remediation costs

• Asset quality remains strong with credit experience benign. Net impairment credit of £323 million in the quarter, driven by a £459 million release given the UK's improved economic outlook. Management judgements in respect of coronavirus retained, now c.£1 billion including the £400 million central overlay taken in the fourth quarter

Balance sheet and capital strength further enhanced

• Capital build of 54 basis points in the quarter with CET1 ratio of 16.7 per cent, significantly ahead of the ongoing target of c.12.5 per cent, plus a management buffer of c.1 per cent and regulatory requirements of c.11 per cent

• Loans and advances up £3.3 billion in the quarter to £443.5 billion, including £6.0 billion open mortgage book growth

• Customer deposits up £11.7 billion in the quarter to £462.4 billion with Retail current accounts up £5.6 billion

• Loan to deposit ratio of 96 per cent provides a strong liquidity position and significant potential to lend into recovery

Outlook

• Given the solid financial performance in the first quarter of 2021, the Group is enhancing its guidance for 2021. Based on the Group's current economic assumptions:

- Net interest margin now expected to be in excess of 245 basis points

- Operating costs to reduce to c.£7.5 billion

- Net asset quality ratio now expected to be below 25 basis points

- Risk-weighted assets in 2021 to be broadly stable on 2020

- Statutory return on tangible equity now expected to be between 8 and 10 per cent, excluding c.2.5 percentage point benefit from tax rate changes

- Accruing dividends with intention to resume progressive and sustainable ordinary dividend policy


https://www.investegate.co.uk/lloyds-ba ... 00047899W/

monabri
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Re: Lloyds Banking Group Q1 2021 Interim Management Statement

#407556

Postby monabri » April 28th, 2021, 8:51 am

Looks promising and the last line relating to "accruing dividends" leads to the question as to what they intend to do with these accruals? (do I recall one of the management team saying that the dividends belonged to the shareholders? ).

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Re: Lloyds Banking Group Q1 2021 Interim Management Statement

#407557

Postby daveh » April 28th, 2021, 8:53 am

This is what they say about dividends:
Capital
The Group's CET1 capital ratio has increased from 16.2 per cent at 31 December 2020 to 16.7 per cent, reflecting capital build in the quarter of 54 basis points, prior to the impact of the dividend accrual. Banking business capital build (pre impairments credit) of 55 basis points and underlying risk-weighted asset reductions of 31 basis points were partly offset by pension contributions and other movements of 26 basis points. The net impact of the impairments credit and partial release of IFRS 9 transitional relief during the quarter was a 6 basis points reduction which included 5 basis points relating to the phased reduction in static relief. The impact of the dividend accrual in the quarter equated to 5 basis points and is currently based upon a pro-rated amount of the 2020 full year dividend.

As previously noted the Group will update the market on interim dividend payments with the half-year results, subsequent to reviewing the PRA's update on distributions which is expected ahead of the half-year results reporting cycle for the large UK banks. In the interim the Group's dividend accrual has been made on an appropriately prudent basis (as set out above) in accordance with PRA guidance. As previously stated, the Board intends to resume its progressive and sustainable ordinary dividend policy with the dividend at a higher level than 2020.

The PRA is continuing to consult on a proposal to reverse the revised capital treatment of intangible software assets that was implemented in December 2020 via EU capital regulations. Should the PRA proceed with their proposal then the reinstatement of the original requirement to deduct these assets from capital will come into force during the year. This would lead to a c.50 basis points reduction in the Group's CET1 capital ratio (net of a reduction in associated risk-weighted assets) and based on the position at 31 March 2021 the ratio would reduce to 16.2 per cent.


I'm not quite sure what that means, I'm assuming they are setting aside (in a notional sense) an amount that they will payout later (if allowed to by the PRA)

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Re: Lloyds Banking Group Q1 2021 Interim Management Statement

#407633

Postby 88V8 » April 28th, 2021, 12:30 pm

And noteworthy that they've released £459mio they had set aside for bad debts. We saw much the same thing from HSBC.
Good news for the banking and lending sector, if this continues.

V8

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Re: Lloyds Banking Group Q1 2021 Interim Management Statement

#407677

Postby scrumpyjack » April 28th, 2021, 2:02 pm

88V8 wrote:And noteworthy that they've released £459mio they had set aside for bad debts. We saw much the same thing from HSBC.
Good news for the banking and lending sector, if this continues.

V8


Hard for the BoE to justify holding back bank dividends in case of future higher bad debts, if previous provisions have already been shown to be too pessimistic.

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Re: Lloyds Banking Group Q1 2021 Interim Management Statement

#407692

Postby Dod101 » April 28th, 2021, 2:35 pm

scrumpyjack wrote:
88V8 wrote:And noteworthy that they've released £459mio they had set aside for bad debts. We saw much the same thing from HSBC.
Good news for the banking and lending sector, if this continues.

V8


Hard for the BoE to justify holding back bank dividends in case of future higher bad debts, if previous provisions have already been shown to be too pessimistic.


Yes. Well the PRA did say they were transitioning back to a normal distribution policy. I think we can be reasonably confident of an interim dividend from both banks at the half year if this trend continues.

Dod

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Re: Lloyds Banking Group Q1 2021 Interim Management Statement

#407761

Postby midgesgalore » April 28th, 2021, 5:55 pm

idpickering wrote:
HIGHLIGHTS FOR THE THREE MONTHS ENDED 31 MARCH 2021

Solid financial performance reflects business momentum and improved economic outlook







• Loan to deposit ratio of 96 per cent provides a strong liquidity position and significant potential to lend into recovery




https://www.investegate.co.uk/lloyds-ba ... 00047899W/


Is this a good, or rather safe, ratio does anyone know (it is the last bullet of the Highlights section)?
It is clearly saying loans are less than deposits but 96% seems high if we get back to toxic assets. :?:

midgesgalore

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Re: Lloyds Banking Group Q1 2021 Interim Management Statement

#407764

Postby dealtn » April 28th, 2021, 6:09 pm

midgesgalore wrote:
idpickering wrote:
HIGHLIGHTS FOR THE THREE MONTHS ENDED 31 MARCH 2021

Solid financial performance reflects business momentum and improved economic outlook







• Loan to deposit ratio of 96 per cent provides a strong liquidity position and significant potential to lend into recovery




https://www.investegate.co.uk/lloyds-ba ... 00047899W/


Is this a good, or rather safe, ratio does anyone know (it is the last bullet of the Highlights section)?
It is clearly saying loans are less than deposits but 96% seems high if we get back to toxic assets. :?:

midgesgalore


I understand the ratio, and what Lloyds say, but have no idea what you are saying by "seems high if we get back to toxic assets" to answer your question.

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Re: Lloyds Banking Group Q1 2021 Interim Management Statement

#407766

Postby scrumpyjack » April 28th, 2021, 6:10 pm

midgesgalore wrote:
idpickering wrote:
HIGHLIGHTS FOR THE THREE MONTHS ENDED 31 MARCH 2021

Solid financial performance reflects business momentum and improved economic outlook







• Loan to deposit ratio of 96 per cent provides a strong liquidity position and significant potential to lend into recovery




https://www.investegate.co.uk/lloyds-ba ... 00047899W/


Is this a good, or rather safe, ratio does anyone know (it is the last bullet of the Highlights section)?
It is clearly saying loans are less than deposits but 96% seems high if we get back to toxic assets. :?:

midgesgalore


That doesn't refer in any sense to how secure or well covered are the loans they have made. It simply means that all the loans they have made are more than funded by deposits customers have placed with them and they have scope to make more loans if they can find suitable clients. That often isn't the case with banks. In the case of mortgages lent to clients the market value of properties will give a much higher level of cover to loans made.

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Re: Lloyds Banking Group Q1 2021 Interim Management Statement

#407947

Postby midgesgalore » April 29th, 2021, 10:55 am

Both dealtn & scrumpyjack
Thanks for picking this query up. I get the loans are covered by deposits and that is a good thing.

I more wonder about the closer the ratio to 100% loans to deposits or anything greater than 100% since if there was an issue like before where loans could not be repaid due to, say unemployment with folks losing their ability to pay out big mortgages, property devaluation would ensue. Lloyds bank's loans would be particularly exposed to this. In this scenario if everyone keeps paying to their loan schedule then all is good but if the situation degraded to where many properties were re-possessed, there would be an excess of available property with (probably) no buyers to support their market value. The value of the loans are the same but the security in bricks and mortar market value against the cumulative loans has degraded. This would stress the bank's financial position.

That's my view on the a bad scenario so my question is how do people, more knowledgeable, perceive the reported 96% Loan to deposit ratio?
Is that a better than industry norm metric after all Lloyds report it as a highlight?

That elaborates on my question which is:
Is this a good value for this ratio does anyone know? Is it below, the same or greater than competitive banks?

Thanks, midgesgalore

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Re: Lloyds Banking Group Q1 2021 Interim Management Statement

#407957

Postby scrumpyjack » April 29th, 2021, 11:07 am

Overall their loan to market value of mortgage lending will be something like 60%. Not very risky and plenty of cover.

A far greater risk is corporate lending bad debts and misconduct liabilities. I think PPI alone cost Lloyds about £20 billion!

On previous form you only know what the big problems are for a bank after the sh*t has hit the fan!

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Re: Lloyds Banking Group Q1 2021 Interim Management Statement

#407959

Postby IanTHughes » April 29th, 2021, 11:12 am

People pondering this might find the following useful:

https://www.investopedia.com/terms/l/lo ... -ratio.asp


Ian

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Re: Lloyds Banking Group Q1 2021 Interim Management Statement

#407962

Postby GoSeigen » April 29th, 2021, 11:17 am

midgesgalore wrote:That's my view on the a bad scenario so my question is how do people, more knowledgeable, perceive the reported 96% Loan to deposit ratio?


Nothing whatsoever to worry about.

GS

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Re: Lloyds Banking Group Q1 2021 Interim Management Statement

#407978

Postby dealtn » April 29th, 2021, 11:38 am

midgesgalore wrote:Both dealtn & scrumpyjack
Thanks for picking this query up. I get the loans are covered by deposits and that is a good thing.

I more wonder about the closer the ratio to 100% loans to deposits or anything greater than 100% since if there was an issue like before where loans could not be repaid due to, say unemployment with folks losing their ability to pay out big mortgages, property devaluation would ensue. Lloyds bank's loans would be particularly exposed to this. In this scenario if everyone keeps paying to their loan schedule then all is good but if the situation degraded to where many properties were re-possessed, there would be an excess of available property with (probably) no buyers to support their market value. The value of the loans are the same but the security in bricks and mortar market value against the cumulative loans has degraded. This would stress the bank's financial position.

That's my view on the a bad scenario so my question is how do people, more knowledgeable, perceive the reported 96% Loan to deposit ratio?
Is that a better than industry norm metric after all Lloyds report it as a highlight?

That elaborates on my question which is:
Is this a good value for this ratio does anyone know? Is it below, the same or greater than competitive banks?

Thanks, midgesgalore


I would treat it as being a completely different measure to one about the riskiness, or otherwise, of their loan book.

But in answer to your question it is good (particularly for a bank of this size) relative to peers, and historically in terms of safety from a liquidity and funding perspective. It would be bad from an ambition and growth perspective.

Most would view the former as a better objective than the latter (especially so in a "stressed" environment). But seeing as this is an investment site (and even on this Board dividends ultimately are paid from profits), it might be seen by investors as a weakness of over-conservatism. It is in line with clearly stated objectives of management though, so investors at least should be aware of what they are likely to get by way of policy.

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Re: Lloyds Banking Group Q1 2021 Interim Management Statement

#408192

Postby midgesgalore » April 29th, 2021, 9:03 pm

IanTHughes wrote:People pondering this might find the following useful:

https://www.investopedia.com/terms/l/lo ... -ratio.asp


Ian


Very useful Ian and thanks for that

midgesgalore


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