Lloyds shares shrugged off a significant motor finance charge to produce the best initial reaction so far to this round of FY2024 results from FTSE 100 banks.
Shares rose 2% after releasing the full-year and fourth-quarter results to hit the highest intraday levels since early 2020.
Motor finance was always going to be the big talking point around Lloyd’s result, and the £700m wouldn’t have come as a surprise to investors. It was higher than some had expected, but it avoided the worst-case scenario.
However, as much of a disappointment as the motor financing charge is, Lloyds is actually doing quite well.
Stripping out the impact of the motoring charges, Lloyds underlying fourth quarter performance was ahead of expectations. Net income for the quarter came in at £4.37bn, marginally higher than the quarter before, and underlying net interest income was also higher.
Lloyds’ strong financial performance was underpinned by robust demand for mortgages, despite ongoing concerns about affordability. Lloyds UK mortgage book grew by £6.1 billion in 2024 and was central to increasing overall loans to £459.1bn.
“Lloyds has capped off a strong year with a clouded fourth-quarter result, setting aside a hefty £700m provision for potential charges related to the ongoing motor finance saga. While you could argue the provision is overly cautious, Lloyds holds the largest exposure of any major UK bank, and the outcome remains uncertain. Despite this, the stock is up over 40% in the past year, reflecting a solid banking outlook and robust performance,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.
“Beneath the surface, Lloyds is delivering strong results. Excluding the motor finance charge, fourth-quarter figures exceeded expectations, thanks to borrowers performing better than anticipated. Remarkably, Lloyds has managed to improve its loan quality over the course of the year, defying fears that borrowers would buckle under the pressure of persistent inflation.”
This strength was a key driving force in the Lloyds share price popping 2% higher on Thursday.
Lloyds shares were at a fascinating juncture going into results, with the stocks trading near the top of a range that has held over the past year. Today’s results have pushed Lloyds to the highest levels since 2020, but only marginally.
Whether Lloyds’s share price can continue to be higher will affect the health of the UK economy during 2025, as the bank seems to be doing everything right from an operational perspective.
Investors will also be delighted at the sheer level of distributions, which were bolstered by a fresh £1.7bn share buyback.
“There’s more than meets the eye in this year-end story and having returned around 10% of its current market cap to investors over 2024, there’s been plenty to cheer,” Britzman concluded.