Lloyds Bank first-half net interest income expected to rise 10%

<p>All eyes will be on Lloyds Bank on Thursday (31st July) to see if it can follow in the footsteps of Barclays with strong results […]</p>

All eyes will be on Lloyds Bank on Thursday (31st July) to see if it can follow in the footsteps of Barclays with strong results that help put recent negative news behind it.

Analysts are expecting Lloyds’ first-half net-interest income to advance by 10%. Net interest income is income from lending and borrowing combined and is a closely-watched metric in the banking industry.

Pre-tax profits are forecast by analysts to be £3.6bn, which would be a rise of almost 25%.

The news would be a better close of the week than the start for Lloyds: on Monday came the news that the 81% UK government-owned bank was to be fined £218mn by UK and US authorities for manipulating benchmark interest rates, including one used to set fees on a government-backed rescue scheme.

Lloyds also has to pay £7.8mn in compensation to the Bank of England for unauthorised reduction of fees paid to use the central bank’s liquidity lifeline, at an ultimate cost to the UK taxpayer.

Signal damage to the bank’s reputation was underscored by Mark Carney, Governor of the Bank of England, writing in a letter to the chairman of Lloyds that the BoE regarded the repo rate manipulation as “highly reprehensible, clearly unlawful”, and possibly amounting to criminal behaviour.

Quite apart from the erosion of implicit trust between a bank and the public that such a document on the record represents, it was Carney’s suggestion that the manipulation might be also be ‘criminal’ that opened the possibility that Monday’s punishment might not be the end of the matter.

Lloyds still faces outstanding issues, but may be done with provisions for now.

Whether or not there will be criminal charges for the misdemeanour relating to London interbank offered rate, or Libor, which was an international benchmark interest rate, it’s just one of several outstanding regulatory issues assailing many of the UK’s biggest banks.

The main one outstanding for Lloyds is the issue of miss-selling of consumer payment protection insurance (PPI) – an allegation faced by several UK financial services groups.

Whilst Barclays set aside about £900mn in provisions for when it will eventually have to make redress for its part of the PPI scandal, Lloyds already in February revealed an additional £2bn in provisions for the same matter.

So whilst Lloyds might tomorrow provide an update together with H1 results on the various legal troubles it faces, further PPI provisions seem unlikely.

Eyes on progress towards resuming dividends

It’s this fact in combination with Lloyds’ well-trailed intention to assume paying a dividend as soon as possible (a move for which the bank must get official permission first) that has slowly inched the shares upwards from the dire levels they crashed to around five years ago.

At 76p (current share price) prospective price/earnings ratio could be less than 10 based on analysts’ forecasts, and even less by December 2015.

If expectations that the dividend could be yielding around 4.4% by then are correct, Lloyds would be undervalued, judging by the current share price.

But let’s not get too far ahead of ourselves!

Obviously, such share price projections do not include the possibility of further shocks.

Lloyds’ stock is still 75% lower than its value during 2007. The event which could potentially lead to a true come-back of the shares — re-privatisation by the UK government — might well be closer than it was a few years ago. But it remains a little way off yet, and that will be borne in mind by investors.

In the meantime, the stock has been proved to be well supported near its current price of 76.19p. Recent highs include those a little above 80p, seen in February of this year.

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