Lloyds Bank: Solid Start For UK Banks

Lloyds Banking: spreads are broadly tighter with the €IG peers today, which seems fair from these results. Equity investors can look to positives (on returns and margins) but, overall, no major spread impacts from these results, in our view. Positively, this is a solid start to UK results season, reflecting well on (in order) NatWest, Nationwide, Santander UK, Barclays and HSBC.

• On capital, mgmt indications are for “pay-down” to a CET1 ratio of 13.5% by end-24 which is broadly inline with previous expectations but, against guidance of 175bp of capital generation, has given equity investors something to be happy about today, aside from the explicit profit beat. Guidance appears to point to the NIM having troughed in 1Q24, too.
• Asset quality: the charge was 23bp before economic assumption changes, so much closer to consensus numbers (of 25-30bp) but those changes are still a positive, we feel. Mgmt has re-affirmed guidance for <30bp for FY24, rather better than current consensus (of c.35bp).
• Liquidity coverage ratio (LCR) is stable at 143% with NSFR 1pp better (at 130%), indicative that, even with deposit competition, the balance sheet remains stable and liquid.