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Lloyds shares surge as mortgage boom doubles profits

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Lloyds upgrades guidance as mortgage boom doubles profits
Lloyds saw a 96% surge in pre-tax profits to £2bn. Photo: Tolga Akmen/AFP via Getty

Lloyds Banking Group (LLOY.L) has upgraded its outlook for the year after posting better-than-expected profits thanks to a booming mortgage market.

The UK’s largest mortgage lender, which also owns Halifax, saw a 96% surge in pre-tax profits to £2bn ($2.2bn) for the three months to the end of September, which was double the amount in the same period the year before. Analysts had forecast for £1.3bn.

It benefited from a rise in demand for larger properties during the pandemic, with homeowners also looking to take advantage of the stamp duty holiday, which ended last month.

Mortgage lending came in at £15.3bn in the nine months to September, the strongest rise in more than a decade, while home loans during the latest quarter rose by £2.7bn.

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The performance was also boosted by the release of $84m it had set aside for bad loans last year at the height of the coronavirus pandemic.

There were also strong returns from the group’s equity investments as well as benefits from higher used car prices.

Shares were 2% higher in London on Thursday.

Lloyds now expects loan impairments to be a net credit for the year, and its return on tangible equity, a key measure of profitability, to be more than 10%, up from between 5% to 7% at the end of 2020.

Lloyds shares rose on Thursday on the back of the news. Chart: Yahoo Finance
Lloyds shares rose on Thursday on the back of the news. Chart: Yahoo Finance

The bank’s core capital ratio, a measure of a bank’s financial strength, increased to 17.2%, well above its target of 12.5%.

Chief executive Charlie Nunn said he saw “significant opportunities” for Lloyds to develop and grow, including through “disciplined investment”.

It was the former HSBC (HSBA.L) veteran’s first set of results since taking the helm in August, replacing long-standing boss Antonio Horta-Osorio.

“This can be built on the foundation strengths of customer service, distribution, and cost management. As we move into the final quarter of 2021, the board, group executive committee and I are developing the next evolution of our strategy and longer-term priorities,” he said.

“Lloyds has joined the merry throng of the UK banks in the current reporting season,” Richard Hunter of Interactive Investor said.

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“As mentioned at its half-year results, dividend announcements will now be made on a half-yearly basis rather than quarterly. These numbers tend to suggest that there could therefore be something of a bumper year-end bonus, where share buybacks and even a special dividend are distinct possibilities.

“In the meantime, the shares have had a good run, having risen 73% over the last year as compared to a rise of 30% for the wider FTSE 100 (^FTSE) and, with improved guidance and prospects in evidence, the market consensus of the shares as a buy will come under little threat.”

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