Lloyds Banking Group’s profits slump 95% as the Covid-19 crisis mounts

Lloyds Banking Group saw its first quarter profits practically wiped out as the financial impact of the coronavirus pandemic mounts. 

The bank. which is Britain’s biggest lender, saw its first quarter profits plummet by 95 per cent, from £1.6billion to £74million. 

The lender has been forced to set aside a whopping £1.43billion to cover the financial fallout from the Covid-19 crisis on its business.

With so many people and businesses falling into financial hardship, the bank has found itself under increasing pressure to dish out loans, and it is simply not clear how many will end up becoming ‘bad debts’ which people simply cannot repay. 

Lloyds’ chief executive Antonio Horta-Osorio said: ‘The coronavirus pandemic presents an unprecedented social and economic challenge which is having a significant impact on people and businesses in the UK and around the world.

‘The economic outlook is clearly challenging, with the longer-term outcome dependent on the severity and length of the pandemic and the mitigating impact of Government and other measures in the UK and across the world.’ 

After coming under pressure from the Prudential Regulation Authority, along with all of the country’s big banks, Lloyds scrapped its dividend for investors last month.

While the bank’s top brass will reconsider whether or not to reinstate the dividend at the end of the year, some City experts are fairly sure it will not be reinstated. 

What do Lloyds’ latest results show?

The bank’s provision for bad loans has been hiked by over 400 per cent to more than £4billion. 

Other banks have made similar provisions, with Santander and Standard Chartered upping their impairment charges by 80 per cent and 1,000 per cent respectively. 

In the first quarter of this year, Lloyds’ revenues fell by 11 per cent to £3.9billion, partly because of fierce competition within the mortgage market. 

The revenue hit is important. Neil Wilson, chief market analyst at Markets.com, said: ‘If the housing market remains sluggish it’s got a lot of exposure to worry about and doesn’t have the investment banking arm to fall back on that Barclays does.’ 

Lloyds’ underlying profit dropped by 74 per cent in the first quarter, coming in at just £558million, against £2.17billion in the same quarter a year ago.

Net income hit just under £4billion, down from £4.4billion in the same period last year. 

The crucial profitability measure of return on tangible equity dropped from 12.5 per cent to 5 per cent, but its capital buffers increased slightly. 

Lloyds scrapped its financial guidance for the year, saying the longer-term impact of Covid-19 on its business remained unclear. The group’s top brass will not be receiving a bonus this year. 

Earlier this week, Barclays unveiled a 38 per cent drop in its pre-tax profits, having been forced to take a £2.1billion charge to cover bad debts. Meanwhile, HSBC has warned it might have to set aside well over £8billion for the same purpose.  

How has Lloyds responded to the crisis? 

LLoyds said it had lent around £410million to 3,000 small businesses as part of the Government’s Coronavirus Business Interruption Loan Scheme.

It has also given payment holidays to 83,000 motor finance customers, 175,000 customers who have taken out personal loans, and 219,000 credit card holders.

Over 400,000 mortgage-holders have also been granted a payment holiday. 

Mr Horta-Osorio said: ‘I would like to pay tribute to the exemplary dedication being shown by all our colleagues across the group providing vital banking services to those in need, but also in going above and beyond in countless and often unseen ways to support the most vulnerable.’ 

How is the lender’s share price faring?

By 8.30am this morning, Lloyds’ share price had already taken a hammering, down 5.62 per cent or 1.95p to 32.81p. Since then, they have recovered slightly, but are still down well over 3.5 per cent. A year ago, the share price stood at over the 62.57p mark. 

Back in December, along with other big banks, the lender’s share price rallied following Boris Johnson’s decisive Conservative party election win. 

Since then, however, Lloyds’ share price performance has been relatively subdued, but did pick up slightly in February after its full-year results were published.

After the Covid-19 crisis started to take its toll, however, the stock ‘suffered greatly as a result of the wider sell off in the equity markets’, David Madden, an analyst at CMC Markets UK, said. 

While the national lockdown triggered a fall in the share price in March, since he start of April there have been tentative signs of a slight rebound.

Mr Madden remains cautiously optimistic about the future for Lloyds’ shareholders. He said: ‘Lloyds share price is off the lows of the month, and if it can hold above the 30p zone, the rebound that began at the start of April should continue.’

John Moore, a senior investment manager at Brewin Dolphin, said: ‘Of the major banks, Lloyds is most vulnerable to a significant UK downturn, following moves to simplify its business over the past decade. 

‘Barclays’ UK results earlier in the week suggested it would be tough for Lloyds, but there is resilience in today’s numbers. 

‘While the bank is in a strong financial position in the immediate term, analysts will keep a close eye on the performance and quality of its loan book amid pressure to lend over the next year and beyond. 

‘That scrutiny, combined with an interest rate environment that challenges profitability, explains why banks’ share prices have been hit so hard over the past month or so. Until there is greater clarity over the health of the economy, their shares may continue to stay at these levels.’