Lloyds joined other FTSE 100 banks last week in updating investors on their performance in the third quarter. Lloyds shares drifted after they said Q3 revenue was higher due to rising interest rates, but warned they had set aside £700m in provisions for potential bad debts.
With a steady stream of forecasts on the UK housing market suggesting we could see house prices fall next year, Lloyds has faced risk aversion from investors who want to reduce exposure to UK mortgages. Lloyds is the UK’s largest mortgage provider.
The Lloyds share price was trading up 2% at 42p at the time of writing and bouncing back from lows around 40p last week.
The bounce today was a result of reports over the weekend that UK ministers were preparing to stand down on their push to implement a windfall tax on UK banks.
There had been calls for another 8% windfall tax on banks by MPs following the release of strong than expected HSBC profits last week.
However, at a time the outlook for the UK economy becomes cloudier, an additional tax on the banks seems unfair given the stringent steps they have taken to protect themselves during the pandemic. There is also a risk an additional tax makes UK banks less attractive to investors.
‘Banks based in the UK already pay a considerable amount of tax, more than any other sector and more than any of our peers in other locations around the world,’ said NatWest Chief Executive Alison Rose.
The concerns from banking executives hit a cord with the UK government and over the weekend there has been mixed reports on whether Hunt and Sunak will indeed push forward with an 8% surcharge that would see banks taxed 33% on profits.
Sunak had previously indicated the 8% surcharge would be reduced to 3%.
The uncertainty around the banking windfall tax will persist until the actual announcement in the Autumn Statement 17th November.
Lloyds shares will react to any headlines relating to the bank surcharge in the meantime, and remains at risk until the announcement is made.