Brexit questions loom over the major banks’ reporting season

Lloyds Banking Group, Copley Wakefield Road.
Lloyds Banking Group, Copley Wakefield Road.

​Lloyds Banking Group is expected to report a sharp rise in annual profits ​tomorrow, boosted by a strong performance at its Halifax Bank arm.

L​loyds’ chief executive Antonio Horta-Osorio, likely to be quizzed over how Brexit could hit the ​group.​

The banking firm employs 6,000 people in Calderdale and have a vast corporate centre on Trinity Road in Halifax.

Lloyds Banking Group was established in 2009 when Lloyds TSB acquired HBOS.

Last week RBS chief executive Ross McEwan warned th​at “political uncertainty around Brexit has gone on far too long”, adding that corporate clients are pausing investment and this will have an impact on income over the next two years.

​Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, ​said that investors should focus on Lloyds’ mortgage lending activities in the context of Brexit. “As the UK’s largest mortgage lender, it’s here that investors should focus their attention. The domestic lending space isn’t as rosy as it once was. Brexit uncertainties have weakened demand for, and availability of, credit.

“This means extra attention needs to be paid to the performance of Lloyds’ recently acquired MBNA (credit card) business, and its mortgage book.

“While unemployment and interest rates remain low – usually good news for lenders – it’s important bad loans and default levels aren’t creeping up. The results give Lloyds the chance to prove it’s in a sturdy position, regardless of the wider uncertainty.”

Ms Lund-Yates added that Lloyds was the hardest hit by the payment protection insurance (PPI) scandal, so the August claims deadline will be positive for shareholders, although she ​said that if claims pick up it could produce some short​ -term pain for the bank.

City analysts expect Lloyds to ​report a 20 per cent increase in pre-tax profit​s to £6.4​bn ​in​ 2018, up from £5.3​bn ​in 2017. The net interest margin – the difference between what a bank pays savers and charges borrowers – is​ set to rise slightly to 2.93​ per cent​.

Pay details are also expected to be released alongside results. Last year, the bank revealed that ​Mr Horta-Osorio’s total remuneration package rose 11​ per cent​ to £6.4​m for 2017.

On Friday, the lender announced that Morgan Stanley investment banker William Chalmers will become its next chief financial officer following the retirement of incumbent George Culmer in June.

Mr Chalmers’ pay will be around £1.3​m a year and Lloyds is to pay him £4.4​m to cover awards he will forfeit when he leaves Morgan Stanley. Lloyds will also be eager to provide an update on the first year of its £3​bn transformation programme.

The high street bank is in the midst of a three-year strategy to invest in revamping its banking app, digitise processes by 2020 and scale its financial planning and retirement businesses.

The increased investment to boost its digital offering is to counter the threat posed by digital-only challenger banks such as Starling and Monzo that have sprung up in recent years.

Analysts at Societe Generale described Lloyds as the “best-placed European retail bank to sustainably fund investment to counter fintech threats”.

Lloyds is bolstering its financial planning business and last year announced a tie-up with wealth manager Schroders.

​Barclays is set to reveal a steep fall in annual profits on Thursday, adding to the banking giant’s headaches as it comes under pressure from an activist investor.

The lender is expected to report pre-tax profits of £2.94bn, down 17 per cent from £3.54bn in 2017, as it counts the cost of litigation and conduct charges, according to analysts at Morgan Stanley.