Dividend in focus as Covid expected to have shaved 80% off Lloyds profits

August Graham, PA City Reporter

Profits are expected to plunge by nearly four-fifths when Lloyds presents its 2020 results next week but shareholders will be firmly focused on the bank’s dividend.

The fall in results will be largely defined by the bank’s impairment charges – the amount of bad loans it writes off mainly due to the economic impact of Covid-19 on its customers.

Analysts expect impairments to reach £4.7 billion across the financial year, after an additional £586 million in the bank’s fourth quarter, according to a consensus forecast provided by the company.

It would lead the bank to a pre-tax profit of £905 million, if analysts are correct, a reduction from £4.4 billion a year earlier.

Shareholders will look for a reinstated dividend. The payments were halted last year on the request of the Prudential Regulation Authority to ensure that banks had enough money to support the economy through the Covid-19 pandemic.

Lloyds is expected to pay out 1p per share for the 2020 calendar year when it reports on Wednesday.

NatWest and Barclays both announced that they would restart dividend payouts this week.

As the UK’s biggest mortgage lender Lloyds relies more heavily on home lending than many of its other competitors.

Last time Lloyds presented results, it revealed that mortgage lending had boomed by £3.5 billion in the three months to September, as the bank processed more applications than at any point since 2008.

“In terms of what shapes those earnings figures, two factors in particular will come in for scrutiny, especially as Lloyds now seems to be past the worst when it comes to compensation for the payment protection insurance (PPI) scandal,” said AJ Bell investment director Russ Mould.

He said investors would look at the above-mentioned impairment, but also be interested in the net interest margin, which measures the profit that Lloyds makes on its mortgages.

It has been reducing in recent years as interest rates remain low but showed some sign of stabilising in the third quarter of last year, Mr Mould said.

It will also be the farewell results for outgoing Lloyds boss Antonio Horta-Osorio, who is leaving in April and will become Credit Suisse chairman later this year.

It marks the end of the Portuguese chief executive’s 10-year reign at the top of one of the UK’s biggest bank.

He will be replaced by the head of HSBC’s high street banking unit, Charlie Nunn.

During his time in charge, Mr Horta-Osorio has led the bank through most of its recovery following the 2008 financial crisis.

A large part of this has involved steering the bank through its response to the payment protection insurance scandal – which ended up costing the bank nearly £22 billion.

The final deadline for PPI claims passed in August 2019 and Lloyds is unlikely to reveal any major updates from the scandal as it reports next week.

He has also overseen the unwinding of the stake that the Government took in Lloyds during the financial crisis to help prop up the vital bank.

From Our Partners