--Lloyds' impairment charge significantly higher in second quarter

--The U.K. bank's prospects remain uncertain

--Lloyds' balance sheet has remained strong

 

By Sabela Ojea

 

Lloyds Banking Group PLC reported Thursday an unexpected swing to a pretax loss for the first half of 2020 after booking a large impairment charge due to the coronavirus pandemic, and said that its outlook remains highly uncertain.

The U.K.'s largest retail bank posted a pretax loss of 602 million pounds ($782.4 million) for the first half compared with a profit of GBP2.90 billion for the same period a year earlier. The lender was expected to report a pretax profit of GBP42 million for the first six months of the year, according to its own compilation of consensus.

The FTSE-100 lender's net income decreased 38% to GBP5.48 billion. The bank was expected to post a net income of GBP7.4 billion for the period, according to its own compilation of forecasts.

These results were driven by the bank's performance during the second quarter of the year, which were marked by a pretax loss of GBP676 million, from a profit of GBP74 million in the first quarter, and a net income of GBP3.46 billion, compared with GBP3.95 billion in the previous quarter of 2020.

The bank took impairments of GBP2.39 billion in the second quarter after booking a GBP1.43 billion charge in the first quarter of the year due to the coronavirus pandemic, a total of 3.82 billion, up from the expected GBP2.9 billion impairments for the first-half based on Lloyds' compilation of estimates.

"The increased impairment charge was primarily due to future potential losses arising from the revised economic outlook for the U.K. economy as a result of the coronavirus outbreak," the lender noted.

The bank ended the period with a common equity Tier 1 ratio--a key measure of balance-sheet strength--of 14.6%, up from 13.6% at the year-earlier period.

"The outlook has clearly become more challenging since our first quarter results, with the economic impact of lockdown much larger than expected at that time...We will inevitably be impacted within the existing book and potentially in the new lending we are undertaking to support our customers. However, the group's loan portfolio remains robust and well positioned given our business model," Chief Executive Antonio Horta-Osorio said.

Shares at 0746 GMT were down 1.78 pence, or 6.3% at 26.59 pence.

 

Write to Sabela Ojea at sabela.ojea@wsj.com; @sabelaojeaguix

 

(END) Dow Jones Newswires

July 30, 2020 04:18 ET (08:18 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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