Lloyds shares: Q4 and full year earnings preview

Lloyds (LON:LLOY) is scheduled to release fourth quarter and full-year earnings on Thursday 22nd February amid concerns about a motor finance probe and the outlook for interest rates in 2024.

After NatWest set the pace with better-than-expected results on Friday, investors will be hopeful Lloyd’s results this week can match their peer in terms of underlying performance.

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Investors will be focused on three core areas this Thursday: total income, net interest margin, and impairment and litigation charges. The outlook will also be vital for Lloyd’s share price performance on Thursday. 

NatWest beat total income expectations as higher interest rates supported earnings, and its customers kept balances with them amid increased savings rates competition.

Lloyds will likely see the same benefit from higher interest rates but the big question will be if they managed to retain customer deposits. Net interest margin is expected to have declined in the fourth quarter, although the outlook for Net interest margin will be the more interesting part of Thursday’s update.

The bank isn’t expected to record any major impairment charges to the loan with the UK economy ticking along and consumers showing signs of resilience.

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In terms of litigation, Lloyds is subject to scrutiny from the FCA as part of their motor finance review which could lead to litigation charges. Another bank named in the probe, Close Brothers, saw its shares tumble after scrapping its dividend, citing uncertainties around the investigation and its outcome.

In the wake of the financial crisis and PPI, Lloyds and other UK banks are all too familiar with the impact of impairments and litigation on earnings. Lloyds investors will hope this is dealt with quickly, and Lloyds may front-load any charges and reverse them in the future.

“Lloyds faired pretty well back at third quarter results, the only major UK bank to see underlying profit before tax improve from the prior quarter. As a traditional lender with operations geared toward interest income, net interest margin (NIM) is key. The 3.08% posted last quarter was lower than markets were expecting, but management remained confident in delivering NIM of more than 3.1% for the year – analysts are looking for 3.01% in the fourth quarter,” said Hargreaves Lansdown’s Matt Britzman.

“With consumers under pressure, loan default commentary and the value of impairments Lloyds takes will be watched closely. Consensus is for a £126mn impairment charge, but some analysts see scope to unwind previous charges which would be a boost to profit. Investors will also be keen to hear any update from management on what impact they expect from the FCA’s investigation in past motor financing, some estimates suggest a charge of up to £1.8bn.”

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