Lloyds’ quarterly profit scraped in just below expectations, a trifling pretext for profit taking in the shares—especially after an early spike on Wednesday, close to September’s 68 pence highs.
Additionally, as Britain’s biggest mortgage lender and high street bank, investor sensitivity to consumer currents is high. There was probably little that CEO António Horta-Osório could say in reply to a conference call question about the economic impact a 25 basis point rate rise that would salve all doubts. It hasn’t helped that loan impairments on aggregate were higher in the quarter, feeding concerns about a household borrowing market that is clearly over-leveraged in parts. Investors listening out for signals about a widely hoped for dividend rise will be concerned that Lloyds (LON:LLOY) may opt for caution if pockets of distress widen.
The more optimistic case includes that total income was above forecast, underlying profit growth firm at the half-year’s 8% rate and that an unexpected 47.5bp lift at the midpoint Lloyds’ forecast capital generation should offset higher capital requirements that are almost certain to be prescribed within stress tests late this year. At the same time, gross asset quality was unchanged in the quarter and a 1.2 percentage point rise in provisions as a percentage of impairments looks largely down to “a single corporate impairment” in the quarter.
In short, whilst it’s difficult to downplay increasing potential for headwinds against Lloyds’ uniquely domesticated exposure, these pressures haven’t arrived yet. In the meantime, the bank could scarcely be in ruder health and all indications point to an increment of dividend growth that reflects that.
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