Lloyds Banking Group Plc

2020 Half Year Results

2020 Q3 Interim Management Statement

Reduced credit loss absorption capacity

As expected, the quarter saw a sharp increase in loan impairments. However, one can wonder if the increase was not capped by the group’s willingness to keep its results afloat. Management’s downbeat guidance in terms of revenue recovery potential and cost reduction does not bode well ...

Significantly lower-than-expected cost of risk guidance

The COVID-19-related crisis further increases the top-line pressure. However, the quarter showed ongoing efficiency gains and, above all, management’s cost of risk guidance stood significantly below our stress test based projections.

Lowered costs and impairments guidance at the rescue

The group released a mixed set of quarterly results, characterised by a fall in the tangible book value and a reduced capital usage. Management’s guidance for this is reassuring: the group is expected to meet expectations thanks to stronger cost control and lower cost of risk.

Markets and PPI weigh

The quarter reminded that the group’s top line has some exposure to capital markets while the bancassurance business proved resilient. The PPI impact was partly offset by a buy-back cancellation.

The never-ending PPI story

Although the quarterly underlying operating trends were broadly unchanged, the reported performance was depressed by heavy PPI charges, fortunately offset by lower other non-recurring charges.