Lloyds sheds its PPI shackles: Here’s how five City analysts reacted

Shares in Lloyds Banking Group were down in early trading, despite results suggesting it was beginning to rid itself of the scourge of PPI.

The lender's third-quarter results showed pre-tax profits were up 38 per cent in the year to the end of September, but shares were down 0.8 per cent in early trading, at 66.8p. Here's what analysts had to say:

1. Good news is being ignored

"Lloyds shares are on the back foot this morning… despite no new PPI provisions making for a rather refreshing change. Also being ignored is upgraded full-year guidance.

"Investors are clearly more concerned with increased loan impairments (single large corporate plus MBNA acquisition), worried about the potential for this to worsen into year-end. Having to wait until next February for news of any more capital returns (special dividends/buybacks) may also be playing its part, putting off those who’ve been waiting patiently for confirmation of more."

– Mike van Dulken, Accendo Markets

2. A consensus of angst

"All the dials are pointing in the right direction at Lloyds, but the share price is still being held back by a consensus of angst over Brexit. The bank is heavily plugged into the domestic economy, and so could sustain collateral damage if Brexit negotiations prompt a slump in UK growth.

"This risk is affecting sentiment towards many domestic cyclical stocks, and while it is a legitimate concern, there is considerable upside if things turn out for the better. In the meantime there is a 5.8 per cent yield on Lloyds shares, which provides substantial compensation to shareholders for their forbearance.

"To that end rising profits at Lloyds will be welcome news for those investors relying on dividends from the bank. The Bank of England could also do Lloyds a favour next Thursday by raising interest rates, which would improve the bank’s profitability further, particularly if followed up with more hikes in 2018. Markets are currently pricing in an 80 per cent chance of a rate rise next week, but the central bank has disappointed on this score before."

– Laith Khalaf, Hargreaves Lansdown

3. Where next?

"Now that the bank has a clean balance sheet with no major commitment to investment banking it is hard to see where it goes for gravy. It must muster all its strength in to mortgage lending (judicious), lending to SMEs and fintech.

"However for shareholders [there was] little sign of jam. It may be unreasonable to expect too much from Lloyds' share price until this court case brought by shareholders over the negligent manner it bought HBOS.

"The case is scheduled to last 14 weeks and could cost the bank £600m. MBNA, the credit card operations, bought in December 2016 for £1.9bn seems to have bedded down well, though yet to show outstanding results."

– David Buik, Panmure Gordon

4. An end in sight?

"Provision for covering the cost of claims for mis-sold payment protection insurance has seemed like a black hole in recent years but Lloyds felt confident that no further provision was needed in the third quarter. This suggests that Lloyds feels an end may now be in sight although as the deadline for claims is nearly two years away another flurry cannot be ruled out."

– Russ Mould, AJ Bell

5. Music to investors' ears

"Lloyds bank, which has more private shareholders than any other UK company, has become a stalwart income play for investors, with a dividend yield of close to five per cent and optimism that this yield could increase.

"Although there was no new comment on dividends, Lloyds' confirmation today that they expect to 'deliver a progressive and sustainable ordinary dividend for the full year and the board will give due consideration at the year end to the distribution of surplus capital through the use of special dividends or share buy backs' is music to the ears of income investors.”

– Rebecca O'Keeffe, Interactive Investor

Read more: Lloyds Bank boss on stress: "It nearly broke me"

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