Lloyds pre-tax profits fall 97% after £1.8bn PPI charge

In its interim results, Lloyds reported a 97% fall in pre-tax profits to £50m in Q3 after recognising a £1.8bn charge relating to higher PPI compensation in the quarter.

Net income fell 6% to £4.2bn, reflecting a decline in net interest margins and reduced activity in commercial banking, while underlying profits fell 12% to £1.8bn.

Its open mortgage book grew by £6.1 billion driven by the £3.7 billion Tesco mortgage acquisition and £2.4 billion of organic book growth. The Group now expects its open mortgage book at the end of 2019, including the Tesco mortgage acquisition, to be ahead of the 2018 year-end balance.

António Horta-Osório, group chief executive, commented: “I am disappointed that our statutory result was significantly impacted by the additional PPI charge in the third quarter, driven by an unprecedented level of PPI information requests received in August. However, our performance continues to demonstrate the resilience of our customer franchise and business model, the strength of our balance sheet and that our strategy is the right one in this environment.

"We will maintain our prudent approach to growth and risk whilst continuing to focus on reducing costs and investing in the business to transform the Group for success in a digital world. Although continued economic uncertainty could further impact the outlook, we remain well placed to support our customers and to continue to Help Britain Prosper.”

Nicholas Hyett, equity analyst at Hargreaves Lansdown, commented: “We already knew an additional charge was coming, even if this is at the higher end of what was expected, and this really should be the last we hear of the whole sorry saga now that the claims deadline has passed. There are other details in today’s results that are more important for long term investors.

"Low interest rates and increased competition mean the bank’s making less money on loans than it has done in the past, and writedowns are creeping up as used car prices fall and some of the bank’s commercial customers run into problems. If those trends continue it will be increasingly difficult for Lloyds to grind out growth. Worse, if conditions deteriorate significantly, this quarter’s numbers suggest to us that Lloyds could really struggle.

"Having said that, if conditions hold, the end of PPI charges should mean the bank’s able to continue offering a pretty impressive 6%+ dividend yield. Unfortunately it increasingly feels like Lloyds’ destiny is out of its hands.”