FINANCIALS: Lloyds Banking: Loan Loss Performance Feels Spread Positive

Lloyds (LLOYDS: A3/BBB+/A) results include improved loan losses which are a positive for NWIDE, YBS, VMUKLN, BACR and NWG, in our view. Guidance has been upgraded slightly and, with spreads having done very little since last results (and estimates cut), expectations were relatively low. This feels a spread positive event to us.

• Credit stats: loan losses came in at just 4bp (even lower than the 6bp at 1Q24 which was seen as relatively exceptional). This appears driven by a big mortgage write-back and something similar in the CIB, partly model-driven. Ex-model changes losses were 15bp (from 23bp in 1Q24). Non-performers are 10bp better q/q (at 2.2%, driven by a big improvement in UK mortgages). Positive for UK peers, incl. Nationwide BS, Yorkshire BS, NatWest and Barclays, we feel. CET1 is in line (at 14.1%).
• Revenues are in line with consensus, too with NII within 0.3% of consensus though this is a key item for equity investors. Costs are also in line so the 12% pre-tax beat is all in the loan loss write-backs.
• Outside of the positive model updates put through, guidance for FY24 has been reaffirmed. Loan loss guidance has been upgraded (to <20bp from <30bp) but having reported 6bp for 1H24, even this could be beaten. RoTE consensus is 11.8% and mgmt is still guiding to c.13%. 

Conf call is 0930 (London time) at: https://web.lumiconnect.com/#/m/124449303