Lloyds shares rose on Wednesday as investors digested the bank’s third-quarter earnings.
The backdrop of low UK economic growth and falling interest rates could have materially affected Lloyds’ earnings during the period, and investors would have been pleased to see Lloyds beat profit expectations amid lower-than-expected impairment charges.
Lloyds shares rose 1% despite third-quarter underlying profit slipping 8% to £1.9bn. This, however, was much better than the £1.7bn forecast by analysts.
Softer economic conditions had meant analysts had pencilled in a level of impairment charges which ultimately weren’t as bad as first thought, helping boost the bottom line.
Another major positive for investors was Lloyds’s income. There was a risk this would fall amid falling interest rates—which it did—but only marginally, from £4.5bn last year to £4.3bn this year.
The era of higher interest rates is over buu investors seem to be prepared to look through the fall profits and focus on stability.
“Lloyds is the first major UK bank to report third-quarter earnings, and it hasn’t disappointed. In tune with recent trends, impairment charges were better than expected and drove a good chunk of the pre-tax profit beat, as borrowers continue to stand firm. Loan and deposit numbers also looked encouraging, with new mortgages driving a big chunk of the loan book growth, a good sign that activity in the housing market is picking back up,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.
“Net interest margin was a touch better than expected, with deposit migration not quite as much of a headwind as some had feared. There is still an ongoing shift toward higher-rate accounts, but as rates come down that should ease.
“The decent margin performance and lower impairments should be a good read-across for names like NatWest and Barclays.”