Lloyds safe as houses – but with some risk of Brexit subsidence Something to bank on

ACity banking analyst, weighing Lloyds Banking Group’s third- quarter results, put it laconically: the bank is more of a Mondeo than a Maserati.

“It’s not going to go anywhere particularly fast, but that does mean there’s less chance of a crash along the way,” says Laith Khalaf, of broker Hargreaves Lansdown. Lloyds more than doubled headline pre- tax profits to £ 1.95 billion in the quarter to end- September.

But in Q3 2016 the lender – the most UK- centric of the big four banks – was hit by significant further PPI ( payment protection insurance) provisions. On an underlying basis, profits this time edged up to £ 2bn from £ 1.9bn. That is more indicative of the true position – steady if modest progress in a slowing UK economy to whose overall performance Lloyds’s fortunes are inexorably linked.

Credit performance is generally good, even if there was a mystery corporate debtor in the latest results that boss Antonio Horta- Osorio said it would be “inappropriate” to identify, and employment is at record levels.

The bank’s net interest margin, the difference between what it pays savers and charges borrowers, is going in the right direction ( for it, not us punters) – up from 2.72 per cent to 2.85 per cent.

It will probably go up farther if the Bank of England heeds Horta- Osorio’s call for an early rise in interest rates. Earlier this year Lloyds also shook off the dead hand of the relic of part- state ownership.

So what’s not to like? Why some clinging City apprehension around the group? Simply that it has become a proxy in the banking sector for Brexit angst.

The talk of a cliff- edge Brexit or a “bare bones” Brexit, which at least varies the metaphor of pessimism, makes investors worry whether the UK economy will slump if that is the case at the March 2019 finishing post. In that case, the bears say Lloyds, with dominant shares in current accounts, credit cards and mortgages, could suffer the mother of all collateral damage. Unsurprising that the banking sector contributed £ 35bn to UK finances in 2016- 17, more than 5 per cent of total tax receipts. Even after retrenchment, it is estimated to be four to five times the size of the economy.