Lloyds bank. Picture: BLOOMBERG/SIMON DAWSON
Lloyds bank. Picture: BLOOMBERG/SIMON DAWSON

London — Lloyds Banking, Britain’s biggest mortgage lender, blamed the cost of compensating mis-sold insurance customers and moving its wealth business for a quarterly profit that missed forecasts.

The bank posted a pretax profit of £1.6bn for the first quarter. This is lower than a consensus of £1.88bn compiled by the bank, which said it was due to one-time items including a break fee for moving some wealth funds out of Standard Life Aberdeen after a British tribunal ruled against the bank in March.

Shares in the bank fell as much as 3.1% in early London trading.

Lloyds is looking to diversify its revenue streams, particularly in wealth and insurance, while its core loans and savings accounts tread water. In 2018, it awarded Schroders and BlackRock a mandate to oversee about £109bn, aiming “to create a market-leading wealth management proposition”. However, the company on Wednesday flagged break fees to move the funds, contributing to a £339m charge.

“We are disappointed by the outcome but we accept it and we are moving on,’ CFO George Culmer said during a media call, refusing to give a specific number for the the break fee Lloyds will have to pay.

PPI bite

The bank also has bills left to pay for its past misconduct. Lloyds posted a further £100m provision for customers who were mis-sold payment protection insurance. The scandal hit many UK banks, but Lloyds’s running total of £19.4bn by the end of 2018 makes it the biggest spender. Culmer said that the cost reflects a surge in calls, partly encouraged by claims management companies, as the compensation program draws to a close in August.

CEO Antonio Horta-Osorio has been cutting costs since taking the top job almost eight years ago, reducing the cost-to-income ratio to 44.7% in the latest quarter, improving from 49.3% at the end of 2018. The London-based bank, which has almost all its assets in the UK, is targeting costs of around 40% of its income at the end of 2020, which would make it one of the most efficient European lenders.

Culmer said the bank will decide later in the year whether to hand any extra money back to shareholders. Lloyds was given more breathing space on its capital requirements this week and has lowered its targets for its CET1 ratio, a measure of capital strength, to around 12.5%, potentially freeing up about 1 billion pounds in excess capital.

“While Brexit uncertainty persists and continued uncertainty could further impact the economy, given the current strong performance, we are reaffirming all of our financial targets,” Lloyds said in the earnings statement.

Bloomberg