You’ve got to admire his optimism: ‘I don’t think this is a profit warning,’ he said this morning - although markets didn’t seem to agree. Share prices in the bank, which is 41% owned by the taxpayer, fell by 2% in early trading, to 35.86p. Not great, considering they’ve only just begun to recover from a very shaky 2011.
Among other alarming-looking figures were its income net of insurance claims (how banks measure sales), which fell by 17%, from £24.96bn last year to £20.77bn this year, while net interest margin (the amount it makes on loans) fell from 2.21% in 2010 to 2.07% in 2011. And it’s expected to dip below 2% in 2012, as interest rates begin to drop. To be fair to the bank, a lot of the causes of that were out of its hands: it pointed out that its mission to shrink its balance sheets by divesting itself of non-core (aka dodgy) assets were partly to blame, while weak demand for loans and higher wholesale funding costs were also causes.
There was good news too: on a ‘combined business’ basis (a measure devised entirely by, and for Lloyds), it posted a £2.69bn profit - an increase of 21%. On a less made-up note, impairments (losses taken on bad loans) fell by more than a quarter, to £9.79bn on a combined business basis - and Horta-Osorio said he expects a similar fall this year, so clearly getting rid of those non-core assets has worked. And he added that Lloyds’ restructuring programme will yield savings more quickly than had originally been expected. Apparently, it’s on course to make an extra £200m of savings by 2014, without any job losses. Or without any job losses on top of the 31,800 it’s made since 2008, in any case...
Lloyds is by no means the only bank to have had a tough year. RBS, also majority-owned by the taxpayer, yesterday posted pre-tax losses of £766m for 2011, compared with £239m the previous year. And the signs of a recovery are all there: not only are those dodgy loans becoming a thing of the past, but its core tire one capital ratio, a key measure of the strength of its balance sheet, rose from 10.2% to 10.8% by the end of last year. Which suggests it’ on the right track.