LONDON (Alliance News) – Lloyds Banking Group PLC on Thursday reaffirmed its guidance for all of 2016 but said it will close more branches and sack more workers in order to prepare for a tougher environment post-Brexit.
The FTSE 100-listed lender, which runs the Lloyds Bank, Halifax and Bank of Scotland brands, said the impact it will face from the UK leaving the European Union will be determined by the economic and political outcomes from the country’s exit negotiations, which remain uncertain at present.
However, Lloyds said it now expects to generate around 1.6% of common equity tier 1 capital pre-dividend in 2016, a downgrade on its previous 2.0% expectation. The downgrade, Lloyds said, was due to the impact of the EU referendum in the UK and, in particularly, the effect this has had on foreign exchange rates and risk-weighted assets.
Given the uncertainty pervading markets post-Brexit, Lloyds said it is too early to determine the impact on its formal longer-term guidance. But while it anticipates it will remain highly capital generative, Lloyds said it is possible this capital generation may be “somewhat lower” in future years than previously guided.
These clouds over the bank’s outlook were accompanied by further cost-cutting action in the partly state-owned business. Having first tabled a plan to close 200 branches and cut 9,000 jobs back in 2014, Lloyds extended this further, doubling the number of planned branch closures to 400 and saying another 3,000 jobs will go, or a total of 12,000.
The branch closures and job cuts are set to be made by the end of 2017 and will result in the group’s targeted annual cost savings rising to GBP1.4 billion by the end of that year, from an original GBP1.0 billion target.
Lloyds also said it will seek to reduce its non-branch property portfolio by around 30% to cut further costs from the business. This will result in a one-off savings of around GBP100.0 million and another GBP100.0 million of costs being eliminated on an annualised basis by the end of 2018.
Lloyds shares were down 4.1% to 53.46 pence, one of the worst performers in the FTSE 100.
Lloyds said its pretax profit for the six months to the end of June grew to GBP2.46 billion, up from GBP1.19 billion a year prior, due to substantially lower regulatory provisions booked for the period.
Underlying profit was down 5.0% year-on-year to GBP4.2 billion, with total income down 1.0% to GBP8.9 billion. Lloyds said its asset quality remains strong and said its balance sheet remains robust.
Lloyds said its growth in buy-to-let lending has been significantly below the market and, in London, it has restricted its share of mortgage flow through loan-to-income caps, part of a wider strategy to de-risk its lending portfolios. The bank added it has reduced its exposure to higher-risk segments of commercial banking business.
The bank hiked its interim dividend 13% year-on-year to 0.85 pence per share.
Despite the downgraded on its CET1 guidance, Lloyds affirmed expectations for its net interest margin for the year to be around 2.7%, with its full-year cost-to-income ratio to be lower than its 49.5% ratio for 2015.
“We have delivered a good financial performance in the first half with robust underlying profit, a doubling of statutory profit and strong capital generation, along with continued progress on our strategic initiatives,” said Lloyds Chief Executive Antonio Horta-Osorio.
By Sam Unsted; email@example.com; @SamUAtAlliance
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