UK Lloyds improves outlook as profits beat expectations

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LONDON (Reuters) – Lloyds Banking Group improved its outlook after posting better-than-expected quarterly profit on Thursday in CEO Charlie Nunn’s first round of earnings at the benchmark bank.

FILE PHOTO: An ATM at a branch of Lloyds Bank in central London, Britain February 25, 2016. REUTERS / Paul Hackett

Britain’s largest mortgage lender posted a pre-tax profit of £ 2bn ($ 2.2bn) for the July-September period, double the figure for the same period last year and better than expected analysts for 1.3 billion pounds.

Like rivals Barclays and HSBC, Lloyds’ results were boosted by the release of cash – £ 84million – it had set aside for bad loans last year when the economic outlook looked bleak.

The bank now expects loan write-downs to be net credit for the year and its return on equity – a key measure of profitability – to more than 10%, up from 5-7% at the end of the year. 2020.

The bank’s shares rose 2.5% at the start of the session, the second best performance in the benchmark FTSE 100.

Former HSBC veteran Nunn took over as head of Lloyds in August, replacing longtime boss Antonio Horta-Osorio following his departure to chair Crisis Credit Suisse.

Nunn inherits a bank placed on an equal footing by his predecessor, but faces the challenge of improving returns amidst benchmark interest rates close to zero and intensifying competition from digital rivals .

“There are clearly significant opportunities for Lloyds Banking Group to further develop its platforms and capabilities and grow,” said Nunn.

The bank’s core capital ratio – a measure of a bank’s financial strength – rose to 17.2%, well above its target of 12.5%.

“The capital position is much stronger than expected, which bodes well for future distributions to shareholders, and we continue to believe that a significant share buyback will be announced alongside the annual results in February,” said Shore Capital analysts in a note.

However, the costs of past mischief continued to squeeze profits, with the bank setting aside an additional £ 100million for repair costs, including compensation for victims of historic fraud at its HBOS Reading branch.

Lloyds has tried to cut costs under Nunn and this month cut an additional 48 branches in England and Wales, with sector banks reducing their presence on the streets in response to the growing use of digital banking services.

($ 1 = 0.7277 pounds)

Reporting by Iain Withers and Lawrence White Editing by Rachel Armstrong and David Goodman


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