What Lloyds Banking Group PLC’s Results Really Meant

Lloyds Banking Group PLC (LON:LLOY) is nearly back to normal.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.


It’s hard to see the wood for the trees when navigating the dense forest of the UK bank’s results. Lloyds (LSE: LLOY) (NYSE: LYG.US) is no exception: its 132-page announcement reports underlying, statutory, core and non-core profits.

So I’ve taken to applying my own consistent, judgmental analysis to banks’ income statements, sifting them into two figures: underlying profits — generally, what the bank would like their profits to be; and statutory profits before the fair value adjustment of the banks’ own debt (FVA) — that’s the warts-and-all bottom line. You can see my analysis of Barclays‘ results here.

FVA — Lloyds calls it ‘own debt volatility’ — is a meaningless accounting adjustment which counter-intuitively represents changes in the market value of the bank’s bonds. Fortunately for Lloyds, it’s not a significant figure. These are the last three years’ results for Lloyds:





Underlying profit before tax




Exceptional/one-off items












Statutory profit before tax




Statutory profit before FVA 





What matters is the top and bottom lines. At both the underlying and statutory level, Lloyds has shown remarkable improvement, with a near-tenfold increase in underlying profit in two years, and a statutory loss turned into a marginal profit.

The difference between underlying and statutory profit is made up of one-off costs (including £1.5bn of restructuring costs in 2013) and costs and provisions for regulatory misdeeds: in Lloyds’ case, this is mainly PPI mis-selling. Restructuring and mis-selling costs should fall away in the next year or two, which gives a clue to Lloyds’ future profitability.

It adds credibility to CEO António Horta-Osório’s claims that Lloyds is becoming a ‘normal’ bank again. A further £35bn of bad assets were shed, leaving £64bn more to go. The capital position is healthier, with a “CET1” ratio of 10.3% and leverage of 4.1%: Barclays was forced to undertake a rights issue to get that ratio up to 3%.

Making hay

With the push of economic growth and a vibrant housing sector, Lloyds is enjoying a moment in the sun. Resumption of dividend payments should turn it into a respectable income stock by next year. But trading at 1.7 times tangible net assets, there isn’t much margin for error.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

 > Tony owns shares in Barclays but no other stocks mentioned in this article.


More on Investing Articles

Mixed-race female couple enjoying themselves on a walk
Investing Articles

Are Raspberry Pi shares a once-in-a-lifetime chance to get rich?

With Raspberry Pi shares surging after a successful IPO, could this UK tech startup offer a long-term wealth creation opportunity…

Read more »

Newspaper and direction sign with investment options
Investing Articles

Huge gains and 9% yields: why now’s an amazing time to be a stock market investor

The stock market’s generating fantastic returns in 2024. Whether you're looking for gains or income, it’s a great time to…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

This steady dividend payer looks like one of the best bargain stocks in the FTSE 100

A yield of 4.7% and a consistent dividend record make this FTSE 100 company look like good value in an…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

£9,000 in savings? That could become passive income of £19,175 a year

It's possible to invest affordable sums of money into building a big passive income stream. Here's how I'd go about…

Read more »

Black father and two young daughters dancing at home
Investing Articles

Legal & General shares: a once-in-a-decade passive income opportunity?

Is a dividend yield at its highest level in a decade, combined with a strong record of increasing payouts, a…

Read more »

Investing Articles

With a 7% yield and 4.1 P/E, is this the best passive income stock on the FTSE 350?

Millions of Britons invest for a passive income. While our writer isn't buying this stock yet, he believes it's worth…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

This amazing FTSE 250 has a 8.8% dividend yield and trades at just 4x forward earnings!

Our Foolish writer believes this FTSE 250 stock is worth keeping a very close eye on. However, he's not keen…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Could this brilliant airline stock be the most undervalued company on the FTSE 100?

Our writer believes this FTSE 100 stock may provide market-beating returns over the coming years, noting its undervalued metrics and…

Read more »