Lloyds Banking Group’s profits have almost been wiped out due to the coronavirus crisis as it became the latest lender to count the cost of the pandemic.
The UK’s largest mortgage lender posted pre-tax profits of £74m for the three months to March, down 95pc and worse than expected, after it took a £1.4bn charge to cover for loans that might not be repaid.
Citi analyst Andrew Coombs said the figure looked “optimistic”, however.
The bank’s current worst-case scenario is that GDP shrinks 7.8pc this year, a fraction of the 50pc plunge predicted by Barclays under its harshest estimate.
Shares in the lender plunged almost 9pc on the results as investors were left disappointed.
Chief executive Antonio Horta-Osorio said the provision number will be reviewed but that he considers the current estimate “prudent” while finance chief William Chalmers said the provisions for the year are “front loaded” in the first quarter.
John Moore, an investor at Brewin Dolphin, said the results show how out of the major UK banks “Lloyds is most vulnerable to a significant UK downturn following moves to simplify its business over the last decade”.
The British economy went into freefall last month when lockdown was imposed to halt the spread of Covid-19 and banks are braced for millions of job losses.
Profits at Lloyds’ rivals Barclays and HSBC, which reported their first quarter numbers earlier this week, were also dragged down after they put aside a respective £2.1bn and $3bn to cover for bad debts over the quarter, with HSBC warning its provisions for 2020 could hit as much as $11bn.
However both HSBC and Barclays were boosted by an increase in trading activity from their investment banking arms. “Lloyds is feeling the pinch from not having a large investment bank,” said Hargreaves Lansdown analyst Nicholas Hyett.
The bank has so far approved 880,000 payment holidays, signing off on payment relief to 400,000 or 18pc of its mortgage borrowers as well as 220,000 credit card customers and 175,000 personal loans.
It has also approved £500m worth of loans under the state-backed coronavirus business interruption loan scheme (CBILS), which is less than its rivals RBS, HSBC and Barclays.
Lloyds, which was bailed out by the government in the 2008 financial crisis, has been heavily criticised for dragging its feet on the loans scheme and not getting the money out quickly enough although its numbers are improving. Mr Horta-Osório said many preferred to opt for alternative support such as payment holidays rather than up their debts.
“Providing that support under the Government schemes does mean we have extended our lending risk appetite in this area during the crisis, and despite the protection offered by Government guarantees, there will inevitably be some additional losses in due course,” Mr Horta-Osorio warned.
The bank has axed bonuses for senior staff, with Mr Horta-Osorio saying he had agreed to have his cut in “solidarity” with the rest of the workforce. It has also scrapped its previous financial guidance, saying it is no longer appropriate.
RBS reports its results on Friday, making it the last major UK bank to do so. At the lender’s annual shareholder meeting on Wednesday, held online, RBS’s chairman Sir Howard Davies said the pandemic “changes everything” and the effects on the economy will be “stark and long-lasting.”