Lloyds Profit Growth Hit by Impairment in Resilient Economy

(Bloomberg) -- No news is good news at Lloyds Banking Group Plc as it continues on its path to being a leaner U.K. retail bank.

Britain’s largest mortgage lender said first-quarter pretax profit increased 23 percent to 1.6 billion pounds ($2.2 billion), and it expects the nation’s “resilient” economy to perform similarly for the rest of the year. The earnings narrowly missed analysts’ expectations.

“There are no signs of deterioration across the economy,” Chief Financial Officer George Culmer said on a call with reporters after its statement on Wednesday. “We are on track to deliver our financial targets for 2018 and maintain our longer-term guidance.”

Chief Executive Officer Antonio Horta-Osorio has been cutting costs since taking the top job around seven years ago. The London-based bank, which has almost all its assets in the U.K., is targeting an aggressive cost-to-income ratio at the end of 2020, which would make it one of the most efficient European lenders. The bank, which had 70,255 staff as of the end of June, has shrunk from about 99,000 employees in 2011, the year Horta-Osorio became chief.

Blemishing the results was a doubling in loan impairment to 258 million pounds and it took another 90 million-pound charge for mis-sold payment protection insurance.

The latest PPI top-up adds to the 600 million pounds it took in the fourth quarter and raises the total it has set aside to compensate customers for the scandal to more than 18 billion pounds.

Lloyds shares fell 0.7 percent at 8:02 a.m. in London trading after the results announcement.

The “overall profit performance is slightly behind our expectation, including a small additional PPI provision, but nevertheless capital generation is strong," said Gary Greenwood, an analyst at Shore Capital. "As such, we do not expect material changes to our forecasts or valuation."

--With assistance from Gavin Finch

To contact the reporters on this story: Stefania Spezzati in London at sspezzati@bloomberg.net, Stephen Morris in London at smorris39@bloomberg.net.

To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Jon Menon

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