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Advertising claims a central position for Lloyds Bank in the financial life of the UK. Other banking services are available. But this domestic retail and business lender is nevertheless a particularly useful window on the nation. The UK now expects to recover faster from the pandemic than most business planners recently imagined.
Back in December, Lex proposed midsummer for a return to post-pandemic normality. The government this week chose June 21 — midsummer’s day — as the target date for restrictions to end, drawing presumably on complex spreadsheets rather than back-of-an-envelope calculations like ours.
Lloyds, whose emblem is a black horse, is cantering out of trouble at pace. Loan loss provisions of £4.2bn pushed full-year pre-tax profits down 70 per cent to £1.2bn. But fourth-quarter impairments of £128m were light.
Feeding the improved outlook for the UK into Lloyds’s economic model created latitude for £660m in impairment releases. Lloyds opted to hold on to a £400m “management overlayâ€, as a buffer. We may surmise a writeback might otherwise have occurred.
A payout cap meant Lloyds’s final dividend was just 0.57p a share. Core tier one equity, therefore, rose to 16.2 per cent of risk-weighted assets. Allow for software and accounting charges and that is still some way above the minimum target, equivalent to about 3.5p a share.
No one suggests Lloyds will pay the lot back to shareholders as soon as the payout cap comes off. But there is plainly plenty of firepower for returns and for investment. Lloyds’s net interest margin is a stout 2.46 per cent. This suggests the pandemic has suppressed price competition, as well as consumer spending. A consequence of the latter is a flood of deposits. A stimulatory grassroots splurge is already apparent in soaring holiday bookings.
Lex is a notorious bear on Europe’s politicised banks. Lloyds’s stock still looks cheap at a price to tangible book value of 0.5 times according to Eikon. Here, as with Lloyds’s “management overlayâ€, prudence is manifest. Celebrations on Victory over Coronavirus Day, June 21, depend on everything going right.
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