Lloyds Q3 profits soar 141% as PPI provisions subside

The increase is due to provisions made last year to cover PPI claims. Lloyds haven't yet put any further money aside to cover PPI misselling, although claims levels in Q3 peaked at around 16,000 per week following the FCA's advertising campaign, before falling back to 11,000 a week.

This is above Lloyds’ assumed run-rate of 9,000 per week, but is currently being covered by the £2.3 billion PPI provision on their balance sheet.

In the first nine months of 2017, Lloyds made £4.5 billion of profit before tax, 38% higher than in the first nine months of 2016.

Underlying profit, discounting the early redemption of some of the bank’s debt in 2016, rose 8% to £6.6 billion.

António Horta-Osório, Group Chief Executive, said: "In the first nine months of the year we have delivered strong financial performance with increased underlying and statutory profit, a significant improvement in returns and strong capital generation. These results highlight the strength of our customer focused, simple and low risk business model and the benefits of our competitive advantage in the UK. Asset quality remains strong, reflecting our prudent approach to risk, while the UK economy remains resilient.

"We are ahead of schedule with the integration of MBNA and now expect completion in the first quarter of 2019. We have also recently announced the acquisition of Zurich’s UK workplace pensions and  savings business which is in line with the Group’s targeted growth strategy and accelerates the development of our financial planning and retirement business.  

"A new organisational structure has also been implemented ahead of the announcement of our strategic review in February. We have announced improved financial targets for 2017, reflecting the strong financial performance in the year, and we remain on track to deliver our longer term guidance."

Laith Khalaf, Senior Analyst at Hargreaves Lansdown, commented: "All the dials are pointing in the right direction at Lloyds, but the share price is still being held back by a consensus of angst over Brexit. The bank is heavily plugged into the domestic economy, and so could sustain collateral damage if Brexit negotiations prompt a slump in UK growth.

"This risk is affecting sentiment towards many domestic cyclical stocks, and while it is a legitimate concern, there is considerable upside if things turn out for the better. In the meantime there is a 5.8% yield on Lloyds shares, which provides substantial compensation to shareholders for their forbearance.

"To that end rising profits at Lloyds will be welcome news for those investors relying on dividends from the bank. The Bank of England could also do Lloyds a favour next Thursday by raising interest rates, which would improve the bank’s profitability further, particularly if followed up with more hikes in 2018. Markets are currently pricing in an 80% chance of a rate rise next week, but the central bank has disappointed on this score before.

"On the PPI front, Arnie and the FCA advertising campaign seem to be doing the business in getting claimants to come forward, though the fact Lloyds hasn’t put any more cash aside suggests the bank thinks the spike in claims may be short-lived. However it’s still early days, and Lloyds may yet have to reach into its pockets to cover further compensation, though with a £2.3 billion PPI war chest on the balance sheet, the bank has a pretty big cushion to fall back on.

"Overall the bank continues to make steady progress, and has also shown it’s willing to make acquisitions where it sees opportunities, having taken on MBNA and more recently Zurich’s UK workplace pension business. Lloyds is more of a Mondeo than a Maserati, it’s not going to go anywhere particularly fast, but that does mean there’s less chance of a crash along the way."