Lloyds said the first quarter had been “incredibly strong” for mortgages after seeing a surge in demand from buy-to-let borrowers and those buying second homes ahead of the Government’s stamp duty increase on April 1. The lender took a GBP790 million hit buying back high interest paying bonds it issued to investors during the crisis.
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The figures provide a welcome boost for George Osborne who has made no secret of his hopes to sell off the final tranche of government shares in the bank.
Lloyds Banking Group has insisted it delivered a “robust” performance in the first three months of the year despite posting falling profits.
It is forecasting bottom-line profits to dip to £1 billion from £1.2 billion a year ago – described by UBS as “unremarkable” but “stable” given the woes in the investment banking sector, which contributed to a 25% plunge in first quarter profits at rival Barclays.
Chief executive Antonio Horta-Osorio said the first quarter performance showed good progress and delivered a “robust financial performance”, adding that Lloyds “continued to support and benefit from a resilient United Kingdom economy”.
Lloyds said the reduction in statutory profits was the result of “the expected charge” relating to the redemption of high interest enhanced capital note (ECN) bonds in the first quarter which totalled £790 million.
Retail players have been shielded from the worst of the banking woes, thanks in part to a buy-to-let lending rush ahead of this month’s stamp duty increase.
Underlying profits per share dropped from 2.3p in the first quarter of 2015 to 1.9p in 2016.
Lloyds said the extra charge for PPI in the fourth quarter took its total for the scandal previous year to £4 billion. That partly explains the weak share price, although impairments, payment protection insurance charges and other fines have also put off buyers.
Culmer said: “What they choose to do is down to themselves”.
Santander warned on Wednesday that the mortgage industry faced “challenges” over the year ahead following the drop-off in demand since April 1 and ahead of the European Union referendum.
Lloyds has ramped up cost-cutting measures in the past few months under a plan set out in 2014 to close 200 branches and slash 9,000 jobs by the end of 2017.
Shares were down by around four per cent this morning after the results were announced, taking the price to 66p a share.
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In January the United Kingdom government postponed a planned sale of its shares in the 9% state-owned lender, citing ongoing turmoil in financial markets.
