Lloyds Banking Group saw its shares fall more than four per cent in early trading on Thursday, dipping below the 100p mark, despite posting a £2.3bn pre-tax profit for the third quarter that surpassed forecasts.
The FTSE 100 lender's profit for the three-month period rose nearly 99 per cent on the previous year's figure. The surge was largely attributed to the absence of significant impairment charges, following the bank's decision to add a further £800m to its motor finance provisions the year prior.
Profit beat and cost control
Profits edged two per cent ahead of the group's internal consensus during the quarter, as the bank reined in its operating expenditure. Lloyds recorded £2.37bn in costs, coming in £28m below consensus.
Its cost-to-income ratio stood at 47.2 per cent, compared with the 48 per cent that had been anticipated. This was underpinned by a nine per cent increase in income to £5bn, broadly in line with market expectations.
Net interest income climbed 10 per cent to £11.1bn, driven by higher-than-expected interest rates. The bank's net interest margin, a key gauge of lending profitability, widened by 17 basis points to 3.21 per cent.
Profitability metrics and outlook
The bank's return on tangible equity (RoTE) reached 19.5 per cent for the period, up from 17 per cent in the second quarter, and comfortably ahead of the bank's full-year RoTE guidance of approximately 16 per cent.
In its presentation slides, the group warned that costs were likely to climb in the fourth quarter following the payment of the UK bank levy and end-year phasing of investment expenditure.
Lloyds set out plans for its next major overhaul of its cost base earlier this year as part of a fresh strategy dubbed Accelerate 2030. The group is aiming for approximately £2bn in cost savings by 2030.
Strategy and tax impact
Charlie Nunn, the bank's chief executive, said the group's overall cost-to-income ratio would fall to below 45 per cent in 2030, representing a reduction from a 50 per cent target for 2026.
"As we near completion of our current strategic chapter, we are excited to begin executing on our new strategy, Accelerate 2030. This will ensure we can deliver continued, sustainable value for our customers and shareholders," Nunn said.
The update comes in the wake of banks being targeted for a tax raid in John Healey's maiden Budget. The Chancellor doubled the surcharge, which sits on top of corporation tax, to six per cent from January for 15 months.
The Office for Budget Responsibility (OBR) has forecast the increase will generate around £1.5bn, with surcharge receipts pulling in £2.4bn in 2027-28, up £1.2bn from 2025-26.
Lloyds shares surged on the news after the tax hike came in below expectations, with many in the City having anticipated the surcharge could revert to its 2023 level of eight per cent as a permanent measure.
