Lloyds (LLOY Stock) share price dives, announces £2bn buyback

Having performed so well in 2021 the Lloyds Bank share price has stalled a bit this year, which isn’t too surprising given that it’s more than doubled from its 8-year low point in September 2020, although it still remains below its pre-pandemic peaks.

Concerns about how UK banks might fare because of the pandemic proved largely unfounded, mainly due to government programs like furlough which cushioned UK consumers from the worst of the economic hit from the pandemic.

At the start of this financial year the bank adopted a cautious tone, saying that the outlook was highly uncertain over concerns that a lot of its customers might find themselves in financial difficulty in the months ahead, due to the latest lockdown, however it still felt confident enough to resume the dividend.

This proved to be a good move as loan demand remained strong and the bank was able to release loan loss provisions, due to the resilience of the UK economy.

In July Lloyds raised its outlook for the year, recording statutory pre-tax profits of £2bn, for Q2, elevating profits in H1 to £3.9bn, well above expectations, as well as announcing the acquisition of savings and pensions firm Embark Group for £390m. The bank also confirmed it would pay a 0.67p dividend.

In Q3 the picture improved further with profits after tax coming in at £1.6bn, almost £1bn higher than a year ago, pushing profits, year to date to just shy of £5.5bn, with the bank adding back another £84m in terms of loan loss provisions, due to the improved economic outlook, taking total impairments added back to £740m year to date.

Today’s Q4 numbers have seen pre-tax profits come in slightly below expectations at £968m, pushing full year profits up to £6.9bn, below expectations of £7.2bn. This appears to have been down to a surprise increase in operating costs which rose above £2bn in Q4, up from £1.87bn in Q3.

Over the last 12 months the bank has added back £1.2bn onto the balance sheet over the last 12 months, with another £467m in Q4.  

In a boost for shareholders the bank announced a final dividend of 1.33p per share, bringing the total dividend for 2021 to 2p per share, as well as announcing a share buyback worth £2bn, or 2.82p per share.

As far as the business is concerned loans and advances to customers rose £8.4bn on the year to £448.6bn, however on a quarterly basis this was a decline from Q3 levels of £451bn, with customer deposits also rising to £476.3bn, a rise of £25.6bn, but also lower from Q3.

Net interest margins over the year improved to 2.54% on average, rising to 2.57% in Q4, with an expectation that this will improve to above 2.6% in 2022.

On the headline numbers these are a decent set of numbers but given events in Q4 around Omicron there does appear to have been a slowdown in the wider business.

Given this morning’s events in Ukraine and the soaring cost of living crisis, Lloyds is likely to find the start of 2022 even more challenging from a business point of view, and any share price reaction this morning could well reflect that uncertainty.